Question
*** PLEASE DO NOT POST A SIMILAR QUESTION, SUCH AS 11-41, PLEASE ANSWER MY QUESITON** ( 41980 is not the answer) Lynn Hart is a
***PLEASE DO NOT POST A SIMILAR QUESTION, SUCH AS 11-41, PLEASE ANSWER MY QUESITON** (41980 is not the answer)
Lynn Hart is a managerial accountant at Paibec Corporation. Paibec is under intense cost competition, and Hart has been asked to evaluate whether Paibec should continue to manufacture part MT-RF or purchase it from Marley Company. Marley has submitted a bid to supply the 30,000 MT-RF units that Paibec will need for 2016 at a price of $18.40 each. Paibec has capacity available to produce the 30,000 units.
From plant records and interviews with John Porter, the plant manager, Hart gathered the following information regarding Paibec's costs to manufacture 26,000 units of MT-RF in 2015:
Direct materials | $135,200 |
Direct labor | 104,000 |
Plant space rental | 78,000 |
Equipment lease | 31,000 |
Other overhead | 218,400 |
Total | $566,600 |
Additionally, Porter tells her:
Variable costs per unit in 2016 will be the same as variable costs per unit in 2015.
If MT-RF is purchased from Marley, plant space will not have to be rented, and equipment will not have to be leased. But these are annual contracts that are going to be expensive to wiggle out of. Porter estimates it will cost $11,000 to terminate the plant rental contract and $4,500 to terminate the equipment lease contract.
45% of the other overhead is variable, proportional to production. The fixed component of other overhead is expected to remain the same whether MT-RF is manufactured by Paibec or outsourced to Marley.
Hart is aware that cost studies can be threatening to current employees because the findings may lead to reorganizations and layoffs. She knows that Porter is concerned that outsourcing MT-RF will result in some of his close friends being laid off. Therefore, she performs her own independent analysis, which reveals the following differences with Porter's analysis:
Direct materials and direct labor wage rates are likely to be higher by 7% and 4%, respectively, in 2016 compared to 2015.
The plant rental and equipment lease contracts can, in fact, be terminated by paying $9,000 and $2,500, respectively.
Paibec can actually save $20,000 of the fixed portion of other overhead costs if MT-RF is purchased from Marley.
REQUIRED [Note: Round unit cost computations to the nearest cent]
Based on Hart's estimates, by how much will Paibec's profits change if MT-RF is purchased from Marley? (Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number.)
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