"That old equipment for producing carburetors is worn out," sald Bill Seebach, president of Hondrich Company. "We need to make a decision quickly." The company is trying to decide whether it should rent new equipment and continue to make its carburetors Internally or whether it should discontinue production of its carburetors and purchase them from an outside supplier. The alternatives follow Alternative Rent new equipment for producing the carburetors for $208,000 per year. Alternative 2Purchase carburetors from an outside supplier for $18.90 each. Hondrich Company's costs per unit of producing the carburetors Internally (with the old equipment) are given below. These costs are based on a current activity level of 40,000 units per year. Direct materials Direct Labour Variable ouerhead Pixed overhead (32.60 supervision, $1.90 depreciation and 35.00 general company overhead) 9.30 Total cost per unit $24.90 References The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and variable overhead costs by 25%. Supervision cost $104,000 per year and direct materials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 65.000 carburetors per year. The total general company overhead would be unaffected by this decision Required 1. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. Assume that 40.000 carburetors are needed each year. a. What will be the total relevant cost of 40.000 subassemblies if they are manufactured internally as compared to being purchased? Total relevant cost (40.000 b. What would be the per unit cost of the each subassembly manufactured internally (Do not found intermediate calculations Round your answer to 2 decimal places.) b. What would be the per unit cost of the each subassembly manufactured Internally? (Do not found Intermediate calculations Round your answer to 2 decimal places.) Per unit cost of subassembly 15 points c Which course of action would you recommend to the president? eBook Indifferent between the two alternatives Purchase from the outside supplier Manufacture Internally References 2 Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. a-1. What will be the total relevant cost of 52,000 subassemblies if they are manufactured Internally? Total relevant cost (52.000 subassemblies) a-2 What would be the per unit cost of subassembly? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Per unit cost of subassembly 0-3. Which course of action would you recommend if 52,000 assemblies are needed each year? a-2 What would be the per unit cost of subassembly? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Per unit cost of subassembly points a-3. Which course of action would you recommend if 52000 assemblies are needed each year? O Purchase from the outside supplier Manufacture Internally Indifferent between the two alternatives -1. What will be the total relevant cost of 65,000 subassemblies if they are manufactured internally? References Total relevant cost (85.000 Subassemblies) D-2. What would be the per unit cost of subassembly? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) mtoto -3. Which course of action would you recommend if 65.000 assemblies are needed each year? Purchase from the outside supplier Indifferent between the two alternatives Manufacture Internally
