HHH Inc. (the company) manufactures staplers. One of their divisions manufactures a hinge which are used in several of their staplers. They produce 12000 hinges annually. The cost per unit for the hinge is as follows:

Description

Per Unit Cost Direct materials $6.75

Direct labour $3.10

Variable overhead $1.50

Fixed overhead $5.00

Total cost $16.35

Of the total fixed overhead assigned to the hinges, $48,000 is directly traceable to the production of the hinge. The remaining fixed overhead costs are common fixed overhead and therefore unavoidable. An outside supplier has offered to sell the hinges to HHH Inc. for $9.50 per unit.

Required:

Analyze the above information and determine if the company should make or buy the hinge. If there was no other alternative use for the facilities that is currently used to produce the hinges, should the company make or buy the hinges? Enter one of the following in the space provided: M for make, B for buy, or NA for indifferent.

What is the most that the company would be willing to pay an outside supplier for one hinge? If the company buys all of their hinges from the supplier, would their operating income increase, decrease, or stay the same? Enter one of the following in the space provided: IN for increase, DE for decrease, and NA for stay the same.

If the company buys all of their hinges from the supplier, by how much would their operating income change? Enter your answer as a positive number.

If the company could rent out the space that is currently used to produce the hinges for $22,500 per year, should the company make or buy the hinges? Enter one of the following in the space provided: M for make, B for buy, or NA for indifferent.

If the company buys the hinges and then rents out the space that is currently used to produce the hinges for $22,500 per year, by how much would their operating income change? Enter your answer as a positive number.