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Problem 7-4 Make-or-Buy Decision For most construction projects, Bradley Heating and Cooling buys sheet metal and forms the metal into heating/cooling ducts as needed. The company estimates the costs of making and installing ductwork for Kerry Park shopping mall to be as follows: Materials $ 35,000 Labor to form ductwork 4,000 Labor to install ductwork 10,000 Misc. variable costs 1,500 Fixed costs allocated based on labor hours 3,000 Total costs $ 53,500 The fixed costs relate to the company's building equipment, and office staff. Expected billings and other costs pertaining to Kerry Park are: Projected billing of Kerry Park for services $ 68,000 Bradley is currently behind schedule on other projects which incurs costs as follows: Late penalty per day $ 1,200 Walt Bradley, the owner of Bradley Heating and Cooling, is considering ordering prefabricated ductwork for the Kerry Park job, which includes the cost of sheet metal. The following cost is expected: Prefabricated ductwork cost $ 42,000 If Walt buys the prefabricated ductwork, he'll be able to reassign workers to another project and avoid 5 days of late fees. Required Should Bradley make the ductwork or buy it prefabricated? Do not buy Buy Prefabricated Prefabricated Difference Materials Labor to form ductwork Labor to install ductwork Miscellaneous variable costs Fixed costs allocated Penalty Total cost Which product makes the largest contribution to company profit, given a capacity constraint measured in terms of production time? ZylexA Incremental revenue of ZylexB Incremental costs: Incremental profit of ZylexB