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Lynn Hart is a managerial accountant at Paibec Corporation. Paibec is under intense cost competition, and Hart has been asked to evaluate whether Paibec
Lynn Hart is a managerial accountant at Paibec Corporation. Paibec is under intense cost competition, and Hart has been asked to evaluate whether Paibec should continue to manufacture part MT-RF or purchase it from Marley Company. Marley has submitted a bid to supply the 35,000 MT-RF units that Paibec will need for 2023 at a price of $18.60 each. From plant records and interviews with Jane Porter, the plant manager, Hart gathered the following information regarding Paibec's costs to manufacture 30,000 units of MT-RF in 2020: Direct materials Direct labor $174,000 120,000 Plant space rental [fixed] 86,000 Equipment lease [fixed] 31,000 Other overhead Variable 81,600 Fixed Total 122,400 $615,000 Porter also tells her that: if MT-RF is not outsourced, all variable costs per unit, space rental costs, and equipment lease costs will be the same in 2021 as in 2020, if MT-RF is purchased from Marley, plant space will not have to be rented, and equipment will not have to be leased, but it will cost $10,500 and $5,000, respectively, to terminate the two contracts, and if MT-RF is purchased from Marley, none of the fixed overhead costs can be avoided. Hart recognizes that Porter is probably concerned that outsourcing MT-RF will result in some of her close friends being laid off. She therefore performs her own independent analysis, and determines that: if MT-RF is not outsourced, direct material and direct labor costs per unit are more likely to be higher in 2021 by 10% and 3%, respectively. if MT-RF is purchased from Marley, the contract termination costs will actually be $8,500 for the space rental and $3,000 for the equipment lease, and if MT-RF is purchased from Marley, $10,000 of the fixed overhead costs can actually be saved. Hart estimates that 35,000 units of MT-RF will be needed in 2021. REQUIRED [Note: Round unit cost computations to the nearest cent] Based on Hart's estimates, if MT-RF is purchased from Marley in 2021, what will be the effect on Paibec's profits? [Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number.]
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