Question 3: Make versus buy You make refrigerators. Currently, you manufacture compressors for your refrigerators in-house. An outside supplier has offered to sell you equivalent compressors at a wholesale price of $65 per unit. You need 1,000 compressors per month. The internal production costs per compressor are as follows: cost per unit direct materials $20 direct labor $20 variable overhead $20 total If you outsource the production of compressors (the buy option) in the short term, how will this choice affect your costs and profit? First, compute variable costs under MAKE versus BUY: MAKE BUY unit VC total ve If you outsource (BUY), the incremental revenue, costs, and profit are: how much each amount changes if you outsource Incremental revenue Incremental VC Incremental CM Incremental FC Incremental profit Enter negative amounts with a minus sign, le 1.000 not ($1,000) Should you outsource? YES - outsourcing reduces costs by $5,000 O NO - outsourcing reduces profit by $5,000 Question 4: Choosing the product mix when capacity is in short supply You have three product lines: Bask, Premium, and Supreme. You have limited capacity of 300 machine hours. You face excess demand for all three products (assume unlimited demand for simplicity) Basic Premium Supreme $5,400 $12,600 $18,000 Unit variable cost $1,000 $3,600 $5,400 Machine hours per unit Compute the CM per unit of capacity (i.e, per machine-hour) for each product: Basic = $ per hour Premium - $ per hour Supreme - $ per hour Which product(s) should you make? Bask only Premium only Supreme only Make all three products to take advantage of the high demand How many units of each product should you make? (enter for products that you do not want to make) Basic - units Premium - Supreme - Hint if you get stuck: You have 300 machine hours. units