In today's fast-paced business environment, decision making is a critical task for managers. Making the right decisions is vital to the success of a company, and it requires access to relevant information.

Cari Pump (CP) Company manufactures water pumps. An important part of the pump is its electronic component (EC). Cari Pump collects data with the following cost information about the costs of making ECs in 2019 and the expected costs in 2020:

Current Costs (2019) Expected Costs (2020)

Fixed manufacturing cost

Fixed manufacturing overhead costs that

can be avoided if ECs are not made 360,000 360,000 Fixed manufacturing overhead costs of plant

depreciation, insurance, and administration that

cannot be avoided even if ECs are not made 850,000 850,000

Variable manufacturing costs

Direct material cost per EC $ 200 $ 190 Direct manufacturing labor cost per EC 60 55

Variable manufacturing cost per batch for setups,

Materials handling, and quality control 2,000 1,800

Cari Pump manufactured 9,000 ECs in 2019 in 30 batches of 300 each. In 2020, Cari Pump anticipates needing 10,500 ECs. The ECs would be produced in 60 batches of 175 each.

A supplier, Furry Deals has enquired about supplying ECs to Cari Pump in 2020 at $350 per EC on whatever delivery schedule Cari Pump wants.

Required:

Part A

1. Calculate the total expected manufacturing cost per unit of making ECs in 2020? (20 Marks)

2. Suppose the capacity currently used to make ECs will become idle if Cari Pump purchases ECs from FurryDeals. Using quantitative analysis alone, should Cari Pump make ECs or buy them from Furry Deals? (20 Marks)

3. Suppose that if Cari Pump purchases ECs from Furry Deals, its best alternative use of the capacity currentlyused for ECs is to make and sell special electronic components (SECs) to the Spec Company. Cari Pump estimates the following incremental revenues and costs from SECs:

Total expected incremental future revenues $2,200,000 Total expectedincremental future costs $2,350,000

On the basis of quantitative analysis alone, should Cari Pump make ECs or buy them from Furry Deals? (20 Marks)