Problem 21.2A

Make or Buy Decision 1. The company needs 18,000 solenoids per year. The solenoids can be purchased from an outside supplier at a cost of $14 per unit. 2. The unit cost of manufacturing the solenoids is $20, computed as follows. 3. If the company decides not to manufacture the solenoids, it will eliminate all of the raw materials and direct labor costs, but will eliminate only 60 percent of the variable factory overhead costs. eliminate $4,000 in fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result from discontinuing the production of the solenoids. Instructions solenoids or buy them from the outside source? harnesses. Problem 21.2A Sample Worked Problem: Problem 21.2B Guthrie Generators Part A \begin{tabular}{|l|l|l|l|l|l|} \hline & MaketheSolenoids & BuytheSolenoids & IncrementalAnalysis \\ \hline \multicolumn{1}{|l|}{ Danufacturing costs for 18,000 solenoids: } & & & \\ \hline & Direct labor & & & \\ \hline & Factory overhead (make vs. bury): & & & \\ \hline & Fixed & & & \\ \hline Cost to purchase 18,000 solenoids & & & \\ \hline Totals & & & \\ \hline \end{tabular} Explain: Using the above schedule, would you recommend that the company manufacture the frames or buy them from the outside source? Schedule requested in Part B Effect of alternative use of factory space: Contribution margin of alternative use of factory space Less: Incremental benefit of producing solenoids internally (from Part A) Incremental benefit of buying solenoids from an outside source and using space to produce additional wire harnesses Explain: Read over the assumptions stated in Part B of the instructions in your text, Would these new assumptions change your recommendation as to whether to make or buy the backpack frames? Your answer should be supported by the schedule you prepared for Part B