Complete "P14-48" on pages 624-625 of Managerial Accounting: Creating Value in a Dynamic Business Environment and present your responses in an Excel spreadsheet.

Cincinnati F low Technology (CFT) has purchased 10,000 pumps annually from Kobec, Inc. Because the price keeps increasing and reached $102.00 per unit last year, CFTs management has asked for an estimate of the cost of manufacturing the pump in CFTs facilities. CFT makes stampings and castings and has little experience with products requiring assembly. The engineering, manufacturing, and accounting departments have prepared a report for manage-ment which includes the following estimate for an assembly run of 10,000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space, or supervision would be needed. The report states that total costs for 10,000 units are estimated at $1,435,500 or $143.55 per unit. The current purchase price is $102.00 per unit, so the report recommends continued purchase of the product.Components (outside purchases) ..................................................................................................................$ 180,000Assembly labor* ...........................................................................................................................................450,000Manufacturing overhead .............................................................................................................................675,000General and administrative overhead ........................................................................................................... 130,500 Total costs ...............................................................................................................................................$1,435,500*Assembly labor consists of hourly production workers.Manufacturing overhead is applied to products on a direct-labor-dollar basis. Variable-overhead costs vary closely with direct-labor dollars. Fixed overhead .......................................................................................... 50% of direct-labor dollars Variable overhead ...................................................................................... 100% of direct-labor dollars Manufacturing-overhead rate ..................................................................... 150% of direct-labor dollarsGeneral and administrative overhead is applied at 10 percent of the total cost of material (or components), assembly labor, and manufacturing overhead. Required: Were the analysis prepared by Cincinnati Flow Technologys engineering, manufactur-ing, and accounting departments and their recommendation to continue purchasing the pumps correct? Explain your answer and include any supporting calculations you consider necessary. (CMA, adapted) Chapter 14 Decision Making: Relevant Costs and Benefits 625 Martinez, Inc., i s a small firm involved in the production and sale of electronic business products. The company is well known for its attention to quality and innovation. During the past 15 months, a new product has been under development that allows users hand-held access to e-mail and video images. Martinez named the product the Wireless Wizard and has been quietly designing two models: Standard and Enhanced. Development costs have amounted to $181,500 and $262,500, respectively. The total market demand for each model is expected to be 40,000 units, and management anticipates being able to obtain the following market shares: Standard, 25 percent; Enhanced, 20 percent. Forecasted data follow.StandardEnhancedProjected selling price ..............................................................................................$375.00$495.00Production costs per unit: Direct material ..................................................................................................... 42.00 67.50 Direct labor ......................................................................................................... 22.50 30.00 Variable overhead ................................................................................................ 36.00 48.00Marketing and advertising per product line ................................................................195,000300,000Sales salaries per product line .................................................................................. 85,500 85,500Sales commissions* ................................................................................................. 10% 10%*Computed on the basis of sales dollars. Since the start of development work on the Wireless Wizard, advances in technology have altered the market somewhat, and management now believes that the company can introduce only one of the two models. Consultants confirmed this fact not too long ago, with Martinez paying $34,500 for an in-depth market study. The total fixed overhead is expected to be the same regardless of which product is manufactured. Required: 1. Compute the per-unit contribution margin for both models. 2. Which of the data above should be ignored in making the product-introduction decision? For what reason? 3. Prepare a financial analysis and determine which of the two models should be introduced. 4. What other factors should Martinez consider before a final decision is made?

Cincinnati Flow Technology
Outsource (Buy)			Insource (Make)
0	(pumps)		0	(pumps)
$ -	($ per unit)		$ -	($ per unit)
$ -	($ annually)		$ -	($ annually)
Cost in making 10,000 pumps
Components (outside purchase).......							$ -
Assembly labor							$ -
Manufacturing overhead							$ -
General / Adminstrative overhead							$ -
Fixed overhead.....50%=				50%	$ -
Variable overhead...100%=				100%	$ -
Manufacturing overhead.....150%=				150%	$ -
Total costs to be avoided by purchasing.....=								$ -
Total costs of purchasing (10,000 pumps x $102 per unit)..=								$ -
Total annual net saving=								$ -
Type your response to the question here:
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