Dallas Engineering manufactures small engines that it solls to manufacturers who install them in products such as lawn mowers. The corrpany currently manufactures all the parts used in these engines but is considering a proposal from an external supplior who wishes to supply the starter assemblies used in these engines. The starter assemblios are currently manufactured in Division 3 of Dallas Enginearing. The costs relating to the starter assembles for the past 12 months were as follows: (Click the icon to view the costs.) Over the past year, Division 3 manulactured 150,000 starter assomblies. The average cost for each starter assembly is $11 ( $1,050,000150,000 ). Further analysis of manufacturing overthead revealed the following information. Of tho total manufacturing overthead, only 25% is considored vanable. Of the foced portion, 5431,250 is an allocation of general overtwead that will remain unchanged for the company as a whole of production of the starter assernblios is discontinued. A further $2.87,500 of the salary. If Dallas Engineoring discontinues production of the starter assemblios, the managor of Division 3 wil be transferred to Division 2 at the same salary. This mowe Will allow the company to save the $100,000 salary that would otherwise be paid to aftract an outsider to this position. Recuired mbly is $11 hsidered vari assemblies dd overhead, transferred ition. 1. Tutwiler Electronics, a reliable supplier, has offered to supply starter-assembly units at $10 per unit. Because this price is less than the current average cost of \$11 per unit, the vice-president of manufacturing is eager to accept this offer. On the basis of financial considerations alone, should Dallas Engineering accept the outside offer? Show your calculations. (Hint: Production output in the coming year may be different from production output in the past year.) 2. How, if at all, would your response to requirement 1 change if the company could use the vacated plant space for storage and, in so doing, avoid $110,000 of outside storage charges currently incurred? Why is this information relevant or irrelevant? Requirement 1. Tutwiler Electronics, a reliable supplier, has offered to supply starter-assembly units at $10 per unit. Because this price is less thain the current average cost of $11 per unit, the vice-president of manufacturing is eager to accept this offer. On the basis of financial contiderations alone, should Dallas. Engineering accept the outside offer? Show your calculations. (Hint: Production oulyt in the coming year may be different from production output in the past year.) (Round the variable costs per unit to the nearest cont. Leave unused cells blank.) All Data Relevant Data Dallas Engineering manufactures small engines that it sells to manufacturers who install them in products such as lawn mowers. The company cu Variable direct materials Variable direct manufacturing labour Variable manufacturing overhead Total variable costs Variable manufacturing costs per unit Fixed general manufacturing overhead Fixed overhead, avoidable Division 2 manager's salary Division 3 manager's salary Total fixed costs Purchase cost per unit, if bought from Tutwiler Electronics
