Short-Run Decision Making Benes Company makes a product that uses component A-25. Currently, Benes makes 5,000 units of the component annually with the following unit manufacturing costs: Benes Company Component A-25 Direct materials $3.30 Direct labor 1.50 Variable overhead 0.75 Fixed overhead 1.40 Total unit cost $6.95 Recently, vendor Arbor Company offered to sell Benes's Component A-25 for $6.30 per unit. 1. From the list below, check all the relevant costs Benes must consider in determining whether or not to accept the offer from Arbor Company. (Select "Yes" for the items that are applicable and "No" for the items that do not apply) Direct materials Yes Total unit cost No Unit fixed overhead No Unit direct labor cost Yes Outside selling price Yes Difference between outside selling price and total unit cost No Unit variable overhead Yes 2. If Benes accepts Arbor's offer, operating income for the year will (Round your intermediate unit costs to the nearest cent. Use the rounded computations in subsequent requirements, if required.) decrease by $3,750 3. What is the highest price Benes could pay that would leave it indifferent between purchasing the component outside or making it in-house? $5.55 per unit Use the Interactive Graph to answer the following question: 4. Suppose fixed overhead per unit increased to $1.60. What impact would that have on the decision to make the component in-house or purchase it from Arbor? It would have no impact on the decision. Continue to vary the purchase price to see the impact on operating income if Benes accepts the offer. Benes Company makes a product that uses component A-25. Currently, Benes makes 5,000 units of the component annually with the following unit manufacturing costs: Direct materials $3.30 Direct labor 1.50 Variable overhead 0.75 Fixed overhead 1.40 Total unit cost $6.95 Recently, Arbor Company offered to sell Benes component A-25 for $6.30 per unit. Benes has found that 60 percent of its fixed overhead for component A-25 is unavoidable. 1. From the list below, check all the relevant costs Benes must consider in determining whether or not to accept the offer from Arbor Company. (Select "Yes" for the items that are applicable and "No" for the items that do not apply) $3.30 Yes $6.95 No $0.84 Yes $1.40 No $0.56 No $1.50 Yes $6.30 Yes $0.55 No $0.75 Yes 2. If Benes accepts Arbor's offer, the impact on operating income for the year will be a(n) (Round your intermediate unit costs to the nearest cent. Use the rounded computations in subsequent requirements, if required.) increase by $3,750 X 3. What is the highest price Benes could pay that would leave it in different between purchasing the component outside or making it in-house? $6.11 per unit x Use the Interactive Graph to answer the following questions: 4. Suppose fixed overhead per unit increased to $1.60 (assume no other changes). What impact would that have on the decision to make the component in-house or purchase it from Arbor? It would make Arbor's price more attractive. 5. Now using all of the original data, suppose that if Benes accepts Arbor's offer, it must hire additional purchasing and receiving help at $850 per year. If Benes accepts Arbor's offer, the impact on operating income for the year will be an) decrease by $950 X Suppose Benes would like to purchase the component from Arbor but only if there is no negative impact on operating income. What purchase price could Arbor offer that would leave Benes indifferent between purchasing and making the component given the information in this question? (Round your answer to the nearest cent.) $ X per unit Continue to vary the purchase price and the percentage of unavoidable fixed overhead to see the impact on operating income if Benes accepts the offer. Currently, Orrin Company makes 40,000 units of a product annually with the following unit manufacturing costs: Direct materials $4.00 Direct labor 1.20 Variable overhead 2.40 Fixed overhead 3.50 Total unit cost $11.10 Orrin Company prices its product at $15 per unit and is selling all it can produce. Recently, Orrin received an offer from Kane Company to buy 5,000 units of the product at $12.50 per unit. 1. From the list below, check all the relevant costs and benefits Orrin must consider in determining whether or not to accept the order from Kane Company. (Select "Yes" for the items that are applicable and "No" for the items that do not apply) $15.00 Yes 1. From the list below, check all the relevant costs and benefits Orrin must consider in determining whether or not to accept the order from Kane Company. (Select "Yes" for the items that are applicable and "No" for the items that do not apply) $15.00 Yes $11.10 No $3.90 No $1.40 No $12.50 Yes $7.60 No $4.90 No 2. If Orrin accepts Kane's order, the impact on operating income for the year will be a(n) (Round your intermediate unit costs to the nearest cent. Use the rounded computations in subsequent requirements, if required.) decrease by $12,500 3. What is the lowest price Orrin could accept on the special order that would leave it as well off as not accepting the order? $12.50 per unit X Use the Interactive Graph to answer the following questions: What is the lowest price 4. Now assume that Orrin is currently making and selling 30,000 units (capacity is still 40,000 units). If Orrin accepts Kane's order, the impact on operating income for the year will be an increase by $24,500 Orrin could accept on the special order that would leave it as well off as not accepting the order? $7.60 per unit 5. Assume that Orrin is currently making and selling 30,000 units (capacity is still 40,000 units). Kane offers $12.50 per unit, but requires that Orrin brand each unit with Kane's logo. This will raise direct materials cost to $4.15 per unit and cost Orrin $6,000 to rent special stamping machinery for the year. If Orrin accepts Kane's order, the impact on operating income for the year will be an increase by $23,750 X What is the lowest price Orrin could accept on the special order that would leave it as well off as not accepting the order? $7.75 per unit X Continue to vary the purchase price, the cost of manufacturing, and the cost of machine rental to see the impact on operating income if Orrin accepts the order