K Peninsula Appliances manufactures a dryer drum that is used in several of its top-selling dryers. You are responsible for deciding whether the company should continue to make the dryer drum internally or buy units from NewFound Electronics Inc. NewFound Electronics Inc. has offered to provide the 20,000 dryer drum Peninsula Appliances requires for $70.50 / unit. Peninsula Appliances has no prior relationship with NewFound Electronics. 5 Costs for Peninsula Appliances to manufacture 20,000 dryer drums for 2020 are as follows: 6 7 8 Direct materials costs Direct labour cost Variable manufacturing overhead costs Fixed manufacturing overhead costs Total manufacturing costs $ 600,000 400.000 300,000 200,000 $ 1,500,000 10 11 12 13 If Peninsula Appliances chooses to buy the drum part, then they will eliminate $80,000 of the fixed manufacturing overhead costs. Peninsula Appliances is currently operating at full capacity, so if the dryer drum is purchased it will release manufacturing resources that could be used to increase internal production of other products. Or, it could allow Peninsula Appliances to accept an order from a foreign customer that would generate sales revenues of $150,000 for 1,000 units. This order will involve $80,000 in total variable costs, and Peninsula Appliances will have to lease special-purpose equipment costing $10,000 for this year. 14 Requirements: M Es 1.) Evaluate the financial implications of this make-or-buy decision. Based strictly on this analysis, should the company accept the external supplier's offer? Include the opportunity cost data Total Relevant Costs Per unit Buy Make Make Buy Show your calculations for the Opportunity Costs used above: Alternative Use - Incremental Revenue: Additional Costs Total Incremental Income Should the company accept the external supplier's offer? Explain why or why not. 2.) What is the maximum price Peninsula Appliances would be willing to pay the outside supplier for the dryer drum? Show your calculations. 3.) What non-financial factors should be considered in making this decision