Mortens, Inc., manufactures a variety of products, including bookshelves. 5,000 bookshelves were produced in the prior year (see the table that follows). These costs included $25,000 of allocated fixed manufacturing overhead. Mortens has capacity to manufacture a total of 10,000 bookshelves per year.

Mortens believes demand in the coming year will be 12,500 bookshelves. The company considered the possibility of purchasing the bookshelves from another manufacturer to help it meet this demand. Jerry Products, a supplier of quality products, would be able to provide up to 6,000 bookshelves per year at a price of $42 each delivered to Mortenss facility.

For each unit of product that Mortens sells, regardless of whether the product has been purchased from Jerry or is manufactured by Mortens, there is an additional selling and administrative cost of $15, which includes an allocated $5 fixed cost per unit. The following is based on the production of 5,000 units in the prior year.

				$	$
Selling price per unit					70.00
Costs per unit
Wood				12.50
Other materials				8.00
Direct labor ($15/hr.)				10.00
Manufacturing overhead				12.00
Selling and Administrative cost				15.00	57.50
Profit per unit					12.50

Required:

1. Assuming Mortens plans to meet the expected demand for 12,500 bookshelves, how many should it manufacture and how many should it purchase from Jerry Products? Explain your reasoning with calculations.

2. Independent of requirement 1 above, assume that Ash Kelly, Mortenss product manager, has suggested that the company could make better use of its furniture department capacity by manufacturing tables instead of bookshelves. Kelly believes that Mortens could expect to use the production capacity to produce and sell 20,000 tables annually at a price of $60 each. Kelly's estimate of the costs to manufacture the tables is presented below. If Kellys suggestion is not accepted, Mortens would sell 12,500 bookshelves instead. Should Mortens manufacture bookshelves or tables? Information on the sales price and costs for the tables follows.

				$	$
Selling price per unit					60.00
Costs per unit
Wood				15.50
Other materials				7.00
Direct labor ($15/hr.)				7.50
Manufacturing overhead				9.00
Selling and Administrative cost				12.00	51.00
Profit per unit					9.00

3. What are some of the long-term considerations in Mortenss decisions in requirements 1 and 2 above?