Required:

1. Determine the incremental cost or benefit of buying the devices (AA10) from the outside supplier. Would you recommend that SunTech Electronics manufacture the devices or buy them from an outside source? (Prepare a schedule to determine the incremental cost or benefit of buying the devices from an outside supplier.) (20 marks)
2. Assume that if the devices (AA10) are purchased from an outside source, the factory space previously used to produce devices (AA10) can be used to manufacture an additional 3,000 electric devices (BB50) per year. Electric devices (BB50) have an estimated contribution margin of $7 per unit. The manufacture of the additional electric devices (BB50) would have no effect on fixed factory overhead. Would this new assumption change your recommendation as to whether to make or buy the devices (AA10)? In support of your conclusion, prepare a schedule showing the incremental cost or benefit of buying the devices (AA10) from the outside source and using the factory space to produce additional devices (BB50). (5 marks)
3. What nonfinancial concerns should SunTech Electronics Ltd. take into consideration? (5 marks)

Question 1 (30 Marks) SunTech Electronics Ltd. manufactures an electric device (AA10) that it uses in several of its products. SunTech Electronics' management is considering whether to continue manufacturing the devices or to buy them from an outside source. The following information is available: a- The company needs 5,000 devices per year. The devices (AA10) can be purchased from an outside supplier at a cost of $14 per device. b- The unit cost of manufacturing the device is $40, computed as follows: c- Discontinuing the manufacture of devices (A.A10) will eliminate all the raw materials and direct labor costs but will eliminate only 80% of the variable factory overhead costs. d- If the devices (AA10) are purchased from an outside source, machinery used in the production of devices will be sold at its book value. Accordingly, no gain or loss will be recognized. The sale of this machinery would also eliminate $5,000 in fixed costs associated with depreciation and taxes. No other reductions in fixed factory overhead will result from discontinuing the production of devices