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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

$12.20

per unit.

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Enterprises' current cost is

$15.25

per unit of the component, based on the

110,000

components that

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Enterprises currently produces. Read the requirements

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Part 1

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

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

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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

$28,000

of contribution margin per year.

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Part 1

Requirement 1. If

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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 110,000 components
Less: Profit from another product
Net cost

Data table EA 5.50 6.75 Direct material per unit..... Direct labor per unit ...... Variable manufacturing overhead per unit Fixed manufacturing overhead per unit. Total manufacturing costs per unit... 0.50 2.50 $ 15.25