Question
For most construction projects, Page Heating and Cooling buys sheet metal and forms the metal into heating/cooling ducts as needed. The company estimates the costs
For most construction projects, Page 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 the Kerry Park shopping mall to be as follows:
Materials $32,500
Labor to form ductwork $4,220
Labor to install ductwork $10,790
Miscellaneous variable installation costs $1,430
Fixed costs allocated based on labor hours $2,950
Total cost $51,890
The fixed costs relate to the company's building, equipment, and office staff. The company plans to bill the Kerry Park developer $68,000 for services. Page is currently behind schedule on other projects and is paying a late penalty of $1,229 per day. Walt Bradley, the owner of Page Heating and Cooling, is considering ordering prefabricated ductwork for the Kerry Park job. The prefabricated ductwork will cost $39,490 (including the cost of sheet metal). If Walt buys the prefabricated ductwork, he'll be able to reassign workers to another project and avoid five days of late fees.
Should Page make the ductwork or buy it prefabricated?
Net incremental: of buying will be $ Page should the prefabricated ductwork.
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