Exercise 2: What are the relevant costs of West Horizons continuing to make the decals? And, should West Horizons accept the offer from Briggs. Yes or No? See circles on the printed exercise. A complete answer will include both a dollar amount and Yes or No.

EXERCISE 2: West Horizons Inc. produces and sells jet skis to the water sports recreational market. It currently produces and sells 1,500 jet skis per year. Along with the other costs of production, West Horizons currently manufactures the sports graphics decals that are attached to each jet ski in a separate area of the manufacturing facility. Following is an analysis of total and per unit costs for producing just these decals: Unit-Level Materials and Labor Costs Unit-Level Variable Indirect Labor Unit-Level Variable Indirect Materials Facility-Level Fixed Costs Total Manufacturing Costs Divide by: Units Produced Cost per Unit $ 425,000 14,000 22,000 124,000 $ 585,000 + 1,500 units $ 390 3 | Page Briggs Graphics offers to produce the decals for West Horizons at a price of $327 per unit. Even if West Horizons accepts the offer from Briggs, it still expects to incur the facility-level fixed costs. However, if it does accept the offer, West Horizons anticipates it can use the newly available manufacturing space to store spare parts saving $17,000 per year in materials storage costs. Determine the relevant costs to this decision using the table below. Hint: The storage cost savings is an opportunity cost of continuing to "make" the devices as the company will only realize this cost savings if they select the other choice (i.e. to buy the devices from Briggs). Make Devices Relevant- Y or N Buy Devices Unit-Level Materials and Labor Unit-Level Variable Indirect Labor Unit-Level Variable Indirect Materials Facility-Level Fixed Costs Opportunity Cost- Storage Cost Purchase Cost (1,500 x $327) Relevant Costs Should West Horizons accept the offer from Briggs Graphics. Yes or No