Guthrie Generators manufactures a solenoid that it uses in several of its products. Management is considering whether

to continue manufacturing the solenoids or to buy them from an outside source. The following information is available:

The company needs $20,000$ solenoids per year. The solenoids can be purchased from an outside supplier at a cost

of $$15$ per unit.

The unit cost of manufacturing the solenoids is $$20,$ computed as follows:

If the company decides not to manufacture the solenoids, it will eliminate all of the raw materials and direct labor

costs but only $75$ percent of the variable factory overhead costs.

If the solenoids are purchased from the outside source, machinery used in the production of solenoids will be sold at

its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate

$$5,000$ in fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result

from discontinuing the production of the solenoids.

Required:

a$-1.$ Prepare a schedule to determine the incremental cost or benefit of buying the solenoids from the outside supplier.

a$-2.$ Would you recommend that the company manufacture the solenoids or buy them from the outside source?

b$-1.$ Assume that if the solenoids are purchased from the outside source, the manufacturing space previously used to

produce them can be used to manufacture an additional $4,000$ electric wire harnesses used in the installation of home

generators. The wire harnesses have an estimated contribution margin of $$4$ per unit. Manufacturing additional wire

harnesses would have no effect on fixed factory overhead. Compute incremental cost or benefit of buying the

solenoids from the outside source and using the factory space to produce additional wire harnesses.

b$-2.$ Would this new assumption change your recommendation as to whether to make or buy the solenoids?

Complete this question by entering your answers in the tabs below.

Prepare a schedule to determine the incremental cost or benefit of buying the solenoids

from the outside supplier.