Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 41,000 MT-RF units that Paibec will need for 2021 at a price of $15.80 each. From plant records and Interviews with Jane Porter, the plant manager, Hart gathered the following information regarding Paibec's costs to manufacture 35,000 units of MT-RF in 2020: $189,000 147,000 78,000 30,000 Direct materials Direct labor Plant space rental (fixed] Equipment lease (fixed) Other averhead Variable Fixed Total 117,600 176,400 $738,000 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 $9,500 and $4,500, 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 9% and 5%, respectively, . if MT-RF is purchased from Marley, the contract termination costs will actually be $8,500 for the space rental and $3,500 for the equipment lease, and if MT-RF is purchased from Marley, $20,000 of the fixed overhead costs can actually be saved. Hart estimates that 41,000 units of MT-RF will be needed in 2021. REQUIRED (Note: Round unit costs to two decimal places.] 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.]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started