Marco Enterprises manufactures one of the components used to assemble its main company product. Specialty Products, Inc., has offered to make the component at a cost of

$13.10

per unit.

Marco

Enterprises' current cost is

$14.75

per unit of thecomponent, based on the

105,000

components that

Marco

Enterprises currently produces. Read the requirements

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.

This current cost per unit is based on the following calculations:

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(Click the icon to view the information.)None of

Marco

Enterprises' fixed costs will be eliminated if the component is outsourced. However, the freed capacity could be used to build a new product. This new product would be expected to generate

$33,000

of contribution margin per year.

Requirement 1. If

MarcoMarco

Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? (Enter a "0" for any zero balances. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy.)

Incremental Analysis	Make	Outsource
Outsourcing Decision	Component	Component	Difference
Variable costs
Plus: Fixed costs
Total cost of 105,000 components
Less: Profit from another product
Net cost

Enter any number in the edit fields and then click Check Answer.

Requirements

1.	If Marco Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much?
2.	What is the maximum price per unit MarcoMarco Enterprises would be willing to pay if it outsources the component?

Data Table

Direct material per unit	$3.75
Direct labor per unit	7.75
Variable manufacturing overhead per unit	0.75
Fixed manufacturing overhead per unit	2.50
Total manufacturing costs per unit	$14.75