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Davey Enterprises manufactures one of the components used to assemble its main company product. Specialty Products, Inc., has offered to make the component at a
Davey Enterprises manufactures one of the components used to assemble its main company product. Specialty Products, Inc., has offered to make the component at a cost of $12.60 per unit. Davey Enterprises' current cost is $17.25 per unit of the component, based on the 95,000 components that Davey Enterprises currently produces. Read the requirements. This current cost per unit is based on the following calculations: (Click the icon to view the information.) None of Davey Enterprises' fixed costs will be eliminated if the component is outsourced. However, the freed capacity could be used to build a new product. This new product would be expected to generate $31,000 of contribution margin per year. make exceeds the cost to buy.) Requirements 1. If Davey Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? 2. What is the maximum price per unit Davey Enterprises would be willing to pay if it outsources the component? Data table
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