Current-Control Inc. manufactures a variety of electrical switches. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a switch to Current-Control for $32 per unit. To evaluate this offer, Current-Control has gathered the following information relating to its own cost of producing the switch internally:

	Per Unit			12,000 Units per Year
Direct materials	$	12		$	144,000
Direct labour		10			120,000
Variable manufacturing overhead		3			36,000
Fixed manufacturing overhead, traceable		8	*		96,000
Fixed manufacturing overhead, common, but allocated		16			192,000
Total cost	$	49		$	588,000

*25% supervisory salaries; 75% depreciation of special equipment (no resale value).

Required: 1-a. Assuming that the company has no alternative use for the facilities now being used to produce the switch, compute the total cost of making and buying the parts.

1-b. Should the outside suppliers offer be accepted?

multiple choice 1

• Accept

• Reject

2-a. Suppose that if the switches were purchased, Current-Control could use the freed capacity to launch a new product. The segment margin of the new product would be $78,000 per year. Compute the total cost of making and buying the parts.

2-b. Should Current-Control accept the offer to buy the switches from the outside supplier for $32 each?

multiple choice 2

• Accept

• Reject