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Pure Comfort manufactures and sells mattresses with adjustable air chambers. Pure Comfort has been producing and selling approximately 500,000 units per year. Each units sells
Pure Comfort manufactures and sells mattresses with adjustable air chambers. Pure Comfort has been producing and selling approximately 500,000 units per year. Each units sells for $600, and there are no variable selling, general, or administrative costs. The company has been approached by a foreign supplier who wishes to provide the air compressor component for $90 per unit. Total annual manufacturing costs, including air compressors, is as follows: Direct materials 350,000,000 Direct labor 80,000,000 Variable factory overhead 16,000,000 Fixed factory overhead 35,000,000 If Pure Comfort outsources the air compressor, it is expected that direct materials will be reduced by 20%, direct labor by 30%, and variable factory overhead by 25%. There will be no reduction in fixed factow overhead. (a) Should Pure Comfort outsource the air compressor? Internal Outsource Direct materials S - $ - Direct labor - - Variable factory overhead - - ixed factory overhead - - Outsourced compressors purchase price otal cost of each option S - S
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