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The Celltech Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards ( CB - 0 2 5 ) , an important part
The Celltech Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards CB an important part of the cellular modem. It reports the following cost information about the costs of making CBs in and the expected costs in :
Current Costs in Expected Costs in
Variable manufacturing costs:
Direct material cost per CB $ $
Direct manufacturing labor cost per CB
Variable manufacturing cost per batch for setups, materials handling, and quality control
Fixed manufacturing cost:
Fixed manufacturing overhead costs that can be avoided if CBs are not made
Fixed manufacturing overhead costs of plant depreciation, insurance, and administration that cannot be avoided even if CBs are not made
Celltech manufactured CBs in in batches of each. In Celltech anticipates needing CBs The CBs would be produced in batches of each. The Alpha Corporation has approached Celltech about supplying CBs to Celltech in at $ per CB on whatever delivery schedule Celltech wants.
Calculate the total expected manufacturing cost of making CBs in and manufacturing cost per unit of CB in quired
Suppose the capacity currently used to make CBs will become idle if Celltech purchases CBs from Alpha.
a On the basis of financial considerations alone, should Celltech make CBs or buy them from Alpha? Show your calculations.
b What is the maximum price per CB Celltech would be willing to pay Alpha under these circumstances?
Now suppose that if Celltech purchases CBs from Alpha, its best alternative use of the capacity currently used for CBs is to make and sell a different kind of circuit boards CB to the Winton Corporation. Celltech estimates the following incremental revenues and costs from CBs:
Total expected incremental future revenues $
Total expected incremental future costs $
On the basis of financial considerations alone, should Celltech make CBs or buy them from Alpha? Show your calculations.
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