Question
One of Current Designs competitive advantages is found in the ingenuity of its owner and CEO, Mike Cichanowski. His involvement in the design of kayak
One of Current Designs competitive advantages is found in the ingenuity of its owner and CEO, Mike Cichanowski. His involvement in the design of kayak molds and production techniques has led to Current Designs being recognized as an industry leader in the design and production of kayaks. This ingenuity was evident in an improved design of one of the most important components of a kayak, the seat. The Revolution Seating System is a one-of-a-kind, rotating axis seat that gives unmatched, full-contact, under-leg support. It is quickly adjustable with a lever-lock system that allows for a customizable seat position that maximizes comfort for the rider.
Having just designed the Revolution Seating System, Current Designs must now decide whether to produce the seats internally or buy them from an outside supplier. The cost for Current Designs to produce the seats are as follow:
Direct materials
Variable overhead
$20/unit
$12/unit
Direct labor
Fixed overhead
$15/unit
$20,000
Current Designs will need to produce 3,000 seats this year; 25% of the fixed overhead will be avoided if the seats are purchased from an outside vendor. After soliciting prices from outside suppliers, the company determined that it will cost $50 to purchase a seat from an outside vendor.
Instructions
(a) Prepare an incremental analysis showing whether Current Designs should make or buy the Revolution Seating System.
(b) Would your answer in (a) change if the productive capacity released by not making the seats could be used to produce income of $20,000?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started