Q.2 Part A Accepting a Special Order/Make or Buy Decisions (21 points)

The following exhibit contains data for Alfonso and John Electronics Company for the year just ended. The company makes industrial power drills with two parts A and B (see below). The exhibit shows the costs of the plastic housing separately from the costs of the electrical and mechanical components and the cost of the two parts put together.

	A	B	A+B
	Electrical and Mechanical Components	Plastic Housing	Industrial Drills
Sales 100,000 units @ $100			$10,000,000
Variable Costs
Direct Materials	$4,400,000	$500,000	$4,900,000
Direct Labor	$400,000	$300,000	$700,000
Variable Factory Overhead	$200,000	$200,000	$400,000
Total Variable Costs	$5,000,000	$1,000,000	$6,000,000
Sales Commissions @10% of sales			$1,000,000
Contribution Margin			$3,000,000
Total Fixed Costs			$2,700,000
Operating Income			$300,000

Required

1. Calculate the total cost per unit (A+B) with a sales level of 100,000 units at a sales price of $100 per unit showing each variable cost per unit separately from fixed cost per unit. Dont forget the sales commission!!! (3 points)
2. During the year a customer made a special order offering $82,000 for 1,000 industrial drills. The drills would be manufactured in addition to the 100,000 units sold and the company has spare capacity to complete the order. The Company would pay the regular sales commission rate of 10% of sales based on the special order price on the 1,000 drills. Should the company accept the special order? (7 points)
3. A supplier offered to manufacture the years supply of 100,000 plastic housings for $15 each. Assume that Company would avoid the relevant costs of making and $350,000 of the fixed costs assigned to housings if it purchases rather than makes the plastic housings. Also assume that it cannot use any of the idle capacity resulting from outsourcing the housings. Should the Company purchase or continue to make the housings (7 points)
4. If the company could rent the space used to make the plastic housings for $200,000 for the period, would this change your decision to make or buy the plastic housings in requirement 3. Explain. (4 points)