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Problem 7-4. Make-or-Buy Decision [LO 1] For most construction projects, Bradley Heating and Cooling buys sheet metal and forms the metal into heating/cooling ducts as
Problem 7-4. Make-or-Buy Decision [LO 1] | ||||||||||||||
For most construction projects, Bradley Heating and Cooling buys sheet metal and forms the metal into heating/cooling ducts as needed. | ||||||||||||||
The company extimates the costs of making and installing ductwork for the Kerry Park shopping mall to be as follows: | ||||||||||||||
Materials | $ 35,000 | |||||||||||||
Labor to form ductwork | 4,000 | |||||||||||||
Labor to install ductwork | 10,000 | |||||||||||||
Miscellaneous variable costs | 1,500 | |||||||||||||
Fixed costs allocated based on labor hours | 3,000 | |||||||||||||
Total cost | $ 53,500 | |||||||||||||
The fixed costs relate to the company's building, equipment, and office staff. The company plans to bill the Kerry Park developer $68,000 for services. | ||||||||||||||
Bradley is currently behind schedule on other projects and is paying a late penalty of $1,200 per day. Walt Bradley, the owner of Bradley Heating and Cooling, | ||||||||||||||
is considering ordering prefabricated ductwork for the Kerry Park job. The prefabricated ductwork will cost $42,000 (including the cost of sheet metal). | ||||||||||||||
If Walt buys the prefabricated ductwork, he'll be able to reassign workers to another project and avoid five days of late fees. | ||||||||||||||
Required | ||||||||||||||
Should Bradley make the ductwork or buy it prefabricated?
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