Q-1

Current-Control Inc. manufactures a variety of electrical switches. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a switch to Current-Control for $32 per unit. To evaluate this offer, Current-Control has gathered the following information relating to its own cost of producing the switch internally:

Per Unit12,000 Units

per YearDirect materials$12$144,000Direct labour10120,000Variable manufacturing overhead336,000Fixed manufacturing overhead, traceable8*96,000Fixed manufacturing overhead, common, but allocated16192,000Total cost$49$588,000

*25% supervisory salaries; 75% depreciation of special equipment (no resale value).

Required:

1-a.Assuming that the company has no alternative use for the facilities now being used to produce the switch, compute the total cost of making and buying the parts.

Make Buy

Total cost--12,000 units

2-a.Suppose that if the switches were purchased, Current-Control could use the freed capacity to launch a new product. The segment margin of the new product would be $78,000 per year. Compute the total cost of making and buying the parts.

Make Buy

Total cost 12,000 units

Q-2

Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per year is:

Per UnitDirect materials$5.10Direct labour3.80Variable manufacturing overhead1.00Fixed manufacturing overhead4.20Variable selling and administrative expenses1.50Fixed selling and administrative expenses2.40

The normal selling price is $21 per unit. The company's capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This order would not affect regular sales.

Required:

1.If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the company's total fixed costs.)

Annual profit would by

2. Assume the company has 1,000 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units?(Round your answer to 2 decimal places.)

Relevant cost per unit: