River Enterprises manufactures one of the components used to assemble its main company product Specialty Products, Inc., has offered to make the component at a cost of $13.00 per unit. River Enterprises' current cost is $13.75 per unit of the component, based on the 80,000 components that River Enterprises currently produces. Read the requirements This current cost per unit is based on the following calculations: (Click the icon to view the information.) None of River Enterprises' fixed costs will be eliminated if the component is outsourced. However, the freed capacity could be used to build a new product. This new product would be expected to generate $26,000 of contribution margin per year. Requirement 1. If River Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? (Enter a "0" for any zero balances. Use a mipus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy.) Make Outsource Component Component Difference Incremental Analysis Outsourcing Decision Variable costs Plus: Fixed costs Total cost of 80,000 components Less: Profit from another product Net cost of River Enterprises outsources the manufacturing of the component operating income will by Requirement 2. What is the maximum price per unit River Enterprises would be willing to pay if it outsources the component? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit. Cost if making 80,000 components Cost if outsourcing 80,000 components Using the basic formula you determined above solve for the indifferent outsourcing cost per unit. (Round your answer to Choose from any list or enter any number in the input fields and then continue to the next question h: lese i Requirements 1. If River Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? 2. What is the maximum price per unit River Enterprises would be willing to pay if it outsources the component? Print Done 1 Data Table - 5.25 Direct material per unit. $ Direct labor per unit .. Variable manufacturing overhead per unit.. 5.25 ... 0.75 Fixed manufacturing overhead per unit ... 2.50 $ 13.75 Total manufacturing costs per unit.. L outso Print Done Ir unit. River Enterprises manufactures one of the components used to assemble its main company product Specialty Products, Inc., has offered to make the component at a cost of $13.00 per unit. River Enterprises' current cost is $13.75 per unit of the component, based on the 80,000 components that River Enterprises currently produces. Read the fequirements This current cost per unit is based on the following calculations: (Click the icon to view the information.) None of River Enterprises' fixed costs will be eliminated if the component is outsourced. However, the freed capacity could be used to build a new product. This new product would be expected to generate $26,000 of contribution margin per year. Make Component Outsource Component Difference Incremental Analysis Outsourcing Decision Variable costs Plus: Fixed costs Total cost of 80,000 components Less: Profit from another product Net cost i River Enterprises outsources the manufacturing of the component operating income will by Requirement 2. What is the maximum price per unit River Enterprises would be willing to pay if it outsources the component? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit. Cost if making 80,000 components Cost if outsourcing 80,000 components Using the basic formula you determined above solve for the indifferent outsourcing cost per unit. (Round your answer to the nearest cont, SX.XX.) The maximum price per unit River Enterprises would be willing to pay if it outsources the component IS per unit Choose from any list or enter any number in the input fields and then continue to the next question 2
