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Skate-Right Company, a skateboard manufacturer, is currently operating at 60% capacity and producing about 8,000 units a year. To use more capacity, the manager has
Skate-Right Company, a skateboard manufacturer, is currently operating at 60% capacity and producing about 8,000 units a year. To use more capacity, the manager has been considering the research and development department's suggestion that the company manufacture its own wheels. Currently the company purchases wheels from a supplier at a unit price of exist20. (Each unit is a set of wheels for a skateboard.) Estimates show the company can manufacture its own wheels at exist10 for direct materials costs and exist4 for direct labor cost per wait. The variable factory overhead is exist1 per unit. The company's accountants would probably allocate another exist6 per unit to the wheels. a. Should Skate-Right make or buy the wheels? Give supporting computations below. ________ b. Suppose Skate-Right could rent out the factory space needed to make the wheels for exist30,000 annually. How would this affect your decision in (a), if at all? Give supporting computations below
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