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Problem #2-30 Points CopperHead is consideri ng outsourcing the production of a security camera. The company has produce and sell the component to CopperHead at
Problem #2-30 Points CopperHead is consideri ng outsourcing the production of a security camera. The company has produce and sell the component to CopperHead at a cost of $41 per y, the area used for the production would be left idle if the component is outsourced. The following are the costs that CopperHead incurs in producing the component. Direct materials Direct manufacturing labor Variable manufacturing overhead $4 per unit $27 per unit $9 per unit Fixed overhead $600,000 (25% is avoidable if production is CopperHead expects to sell 600,000 units next year at a price of $60 per unit. CopperHead's capacity is also 600,000 units. Ignore income taxes. a. Should CopperHead outsource the production? Provide quantitative analysis b. What is maximum price that Copperhead would be willing to pay for the component? c. Assume that CopperHead can use the idle space to produce and sell another product, supporting your answer Part Z, if the production of th that 220,000 units of Part Z can be produced next year and then be sold for $10 per unit. The estimated costs to produce 220,000 units of Part Z are $1,839,000. How does this affect your answer to a. above? e security camera is outsourced. Management estimates
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