Current Attempt in Progress

Sarah is the manager of the timepiece division at Blossom Corporation. Her friend and colleague Matthew is the manager of the clock assembly division. His business line collects the component parts from the other divisions and assembles the company's signature grandfather clocks. Both Sarah and Matthew are evaluated on their own division's profitability. At the end of their weekly management meeting, they discuss an interesting opportunity.

Sarah: I got this call out of the blue yesterday. A sales rep from Timing Co$.$ offered to sell me all of the timepieces we use in a two$-$week period for just $$93,000.$ That's less than my current cost. I couldn't believe it$.$ Of course, I told him I would have to think about it$,$ but it seems like a no$-$brainer. My employees have been working so hard. This could really help me keep my costs down so I could meet the budget$-$and yes, my bonus, too.

Matthew: Wow! That does sound like an intriguing offer. Would you have to lay off your employees, though? I$\text{'}$m not sure how well that would go over.

Sarah: $,$ No$.$ I would just try this for a two$-$week period, while my employees are on holiday. That would allow me to take things one step at a time.

Sarah notes the following cost structure associated with her timepieces.

Proportion of Total Production Cost

Direct material $20\%$

Direct labor $,40$

Variable$-$MOH $10($allocated at $25\%$ of DL cost$)$

Fixed$-$MOH $30(allocatedat75\%ofDLcost)$

Total $100\%$

For an order this size, the sum of her own DM and DL would amount to $$75,000.$ The company's total fixed overhead cost would not change regardless of her decision.

$($a$)$

How much better or worse off would Sarah's timepiece division look if she purchased the timepieces instead of manufacturing them for this short period of time?

Sarah's division would look $ if it outsources this particular order.