Marquette Manufacturing produces invisible electric dog fences, sold through retail locations nationwide. The selling price of the fence is $150 per unit. The cost to manufacture and market the fences is shown below. These figures represent the cost at the companys normal volume of 3,000 units per month.

(NOTE: Unless otherwise stated, assume that no connection exists between the situation described in each question; each is independent. Also, ignore taxes or other costs not specifically mentioned in the questions.)

Marquette receives a proposal from an outside contractor who offers to make and ship 1,500 fences directly to Marquettes customers as orders arrive from Marquettes sales force. When managers meet to discuss this proposal, Product Manager Will Hansen brings up the fact that they have the design for an electric fence that can be used for large animals that has never been produced. Will suggests that this may be the perfect time to launch this new product and at a selling price of $225 per unit it is sure to increase sales revenue. The production manager calculates that the idle time created by accepting the contractors offer would allow them to produce 1,000 of the new fence. The cost to produce the new fence would be $175 in variable manufacturing expense but fixed manufacturing and marketing costs would remain unchanged. The product mix would now be 1,000 of the new fence and 1,500 of the old fence. If Marquette wants to seriously consider taking the contractors offer, what in-house cost should be used to evaluate the outside contractors bid. If the payment to the outside contractor is $90 per unit, should they accept the offer? Why or why not? (Show all supporting calculations).

Unit Manufacturing Costs Variable materials $ 15.00 Variable labor $ 17.50 Variable overhead $ 12.50 Fixed overhead $ 16.00 Total unit manufacturing costs $ 61.00 Unit Marketing Costs Variable $ 12.00 Fixed overhead $ 17.00 Total unit marketing costs $ 29.00 Total unit costs $ 90.00