Kramer Company, makes 3,000 units every year of a component called Axial Tap for use in one of its products. Data concerning the unit production costs of the axial tap for Kramer Company is given follow: Direct Material $33 Direct Labor $10 Variable Manufacturing Overhead $7 Fixed Manufacturing Overhead* $20 Total Manufacturing Cost per unit $70 * based on 3,000 units of production, all of it is Traceable Fixed Cost. Hubbert Company, also produces Axial Taps. Hubbert wants to supply all Axial taps to Kramer Company. Hubbert is considering to offer selling price of $66/unit to Kramer. If Hubbert supplies the taps, Kramer Company can discontinue making the Axial Taps, as a result 40% of the above fixed manufacturing overhead cost could be saved. Assume that direct labor is a variable cost. Moreover, Kramer Company could use the facilities presently devoted to production of the Axial Taps to expand production of another product that would increase contribution margin of the other product by $35,000 annually. Hubbert Companys normal Contribution Margin for Axial Taps is $18/unit. However, expected Contribution Margin from selling to Kramer is $11/unit. Hubert Company still wants to sell to Kramer for long term strategic purposes. Hubbert will lose 2,000 units of sales to other customers for fulfilling the requirements of Kramer Company because of capacity. This proposal is not finalized yet and Kramer and Hubber are reviewing this proposal separately. From Kramer's perspective, identify the relevant costs for making the make or buy decision about Hubbert's offer.

Part-3 of 3

Based on Make or Buy analysis, Kramer Company should ------------- offer from Hubbert.

The analysis shows that Kramer Company's net income will ------------- by ------- if the decision is to accept the offer.

rhead Cost per unit that is not relevant to the make or buy decision 12 in the decision 35000 alysis, Kramer Company should the offer from Hubbert. ramer Company's net income wi, by if the dec accept reject 11,000 24,000 35,000 increase decrease Perspective unchanged ded for the previous questions on Kramer and Hubbert, please input the to Kramer as special order and does not expect any change in costs. submit. Click Save All Answers to save all answers. o (hp)