Muesli AG currently purchases all its packaging for the muesli that it sells. They pay 0.12 for the large bags, 0.28 for large boxes, 0.09 for small bags and 0.21 for small boxes. Management is considering using a corner of the warehouse that is unused to manufacture the large boxes. They currently purchase and use 48,000 large boxes per month, 576,000 large boxes per year. The table below describes the estimated costs to manufacture the large boxes. Muesli AG will need to purchase equipment to cut, fold and glue the boxes. It will be depreciated for five years at 10,400 per year. Direct labor per month Purchase of equipment Bundle of cardboard Each bundle makes 990 boxes. Labels (each) Fixed manufacturing overhead Per box of muesli 12,000 52,000 12.00 0.01 1.61 4. Compare the costs of manufacturing the large boxes to the cost of purchasing the large boxes. 5. Should Muesli AG manufacture the large boxes or purchase them from their current supplier? 6. Explain how the purchase of the box manufacturing equipment informs your decision. Decision 2 [5] [6] Cost of purchasing large boxes Cost of manufacturing large boxes Warehouse space Labor per month Equipment purchase Cardboard Labels Fixed manufacturing overhead Total cost to manufacture boxes Cost to manufacture vs. cost to purchase # of Boxes 576,000 990 Costs 0.28 12,000 52,000 12.00 0.01 1.61 Relevant Costs [4] [4]