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Elena Martinez is a managerial accountant at Paibec Corporation. Paibec is under intense cost competition, and Martinez was asked to evaluate whether Paibec should continue

Elena Martinez is a managerial accountant at Paibec Corporation. Paibec is under intense cost competition, and Martinez was asked to evaluate whether Paibec should continue to manufacture part MT-RF or purchase it from Marley Company in 2022. Marley had submitted a bid to supply the 38,000 MT-RF units that Paibec needs for 2022 at a price of $15.20 each.

From 2021 plant records and interviews with Janice Liu, the plant manager, Martinez gathered the following information regarding Paibec's costs to manufacture 35,000 units of MT-RF in 2021:

Direct materials $217,000
Direct labor 105,000
Plant space rental [fixed] 86,000
Equipment lease [fixed] 40,000
Other overhead
Variable 114,800
Fixed 172,200
Total $735,000

Liu also told her that:

  • if MT-RF was not purchased from Marley, direct material and direct labor costs per unit were more likely to be higher in 2022 by 7% and 3%, respectively,
  • if MT-RF was purchased from Marley, $10,000 of the fixed overhead costs could be saved.
  • if MT-RF was purchased from Marley, plant space will not have to be rented, and equipment will not have to be leased, but it will cost $10,000 and $3,500, respectively, to terminate the two contracts.

Martinez estimated that 38,000 units of MT-RF would be needed in 2022.

Q) If MT-RF was purchased from Marley in 2022, what would be the effect on Paibec's profits? [Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number.] REQUIRED [ROUND ALL VARIABLE COSTS PER UNIT TO TWO DECIMAL PLACES.]

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