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Managerial Accounting McVay Industries (MI) produces ice cream supplies including bowls, scoops and shake makers. MI made $605,000 of pre-tax profit last year which was
Managerial Accounting
McVay Industries (MI) produces ice cream supplies including bowls, scoops and shake makers. MI made $605,000 of pre-tax profit last year which was slightly over 7% of sales. They are looking for ways to improve profitability and are considering outsourcing production of their shake makers. Juan Hernandez, the controller, compiled the following information. If the shake maker is outsourced, fixed manufacturing overhead costs of $100,000 to lease machinery related to shake maker production could be eliminated. Assume that direct fixed SG&A expenses relate directly to the shake makers line and could be completely eliminated if the shake maker product line is dropped. Additionally, if the shake maker is outsourced, the company would have idle capacity and could produce and sell an additional 150,000 bowls (for the same selling price of $2 per bowl). What is the maximum amount MI should pay for the shake maker from an independent supplier (price per unit) to be no worse off financially? Show your workStep by Step Solution
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