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Speedy Gonzales Ltd manufactures bath towels and other bathroom textiles. The factory can manufacture a maximum of 600,000 bath towels. The company, however, is company
Speedy Gonzales Ltd manufactures bath towels and other bathroom textiles. The factory can manufacture a maximum of 600,000 bath towels. The company, however, is company currently operating at 90% capacity. The bath towels normally sell for $50 per piece. The variable cost to produce one bath towel is $35. The fixed costs per year consist of the following: Fixed overhead Administration $3,200,000 $1,900,000 $5,100,000 Consider the following independent scenarios: Scenario B Yosemite Sam Ltd has approached Speedy Gonzales Ltd to produce all bath towels currently produced for the entire year for $37 per piece. As the buy option includes all necessary manufacturing, packaging and transportation costs, Speedy Gonzales Ltd can reduce its fixed overhead costs to $2,400,000. In addition, administration costs will decrease by $200,000. However, delivery costs of $0.10 per bath towel will need to be incurred, and a despatch employee at $1,000 per month will be required. For Scenario B: (i) Prepare a table to compare the costs of the make and buy options
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