The Huron Division of the Great Lakes Corporation manufactures subassemblies used in Great Lakes's final products.Lynn Hardt of Huron's profit planning department has been assigned the task of determing whether Huron should continue to manufacture a subassembly component, THINGAMAJIG, or purchase it from Hudson Bay Company, an outside supplier.Hudson Bay has submitted a bid to manufacture and supply the 30,000 units of THINGAMAJIG Great Lakes will need for 2019 at a per-unit price of $20.00.Hudson Bay has assured Great Lakes that the units will be delivered according to Great Lakes's production specifications and needs. The contract price of $20.00 is applcable only in 2019, but Hudson Bay is interested into a long-term arrangement beyond 2019.

Lynn has submitted the following information regarding Huron's cost to manufacture 25,000 units of THINGAMAJIG in 2018:

Direct materials

$168,750

Direct labour

100,000

Factory space rental

150,000

Equipment leasing costs

45,000

Other manufacturing costs

250,000

Total Manufacturing costs

$ 713,750

Lynn has collected the following information related to manufacturing THINGAMAJIG:

• Equipment leasing costs represent special equipment used to manufacture THINGAMAJIG. Huron can terminate this lease by paying the equivalent of 1 month's lease payment for each of the 2 years left on its lease agreement.
• Forty percent of the other manufacturing overhead is considered variable. Variable overhead changes with the number of units produced, and this rate per unit is not expected to change in 2019. The fixed manufacturing overhead costs are not expected to change (in total) whether Huron manufactures or purchases THINGAMAJIG. Huron can use equipment other than the leased equipment in its other manufacturing operations.
• Direct materials cost used in the production of THINGAMAJIG is expected to increase 7% in 2019.
• Huron's direct labour contract calls for a 4% wage increase in 2019.
• The facilities used to manufacture THINGAMAJIG are rented under a month-to-month rental agreement.Huron would have no need for this space if it does not manufacture THINGAMAJIG.Thus, Huron can withdraw from the rental agreement without any penalty.

John Porter, Huron's divisional manager, stopped by Lynn's office to voice his opinion regarding outsourcing of THINGAMAJIG. He commented, " I am really concerned about outsourcing THINGAMAJIG.I have a son-in-law and a nephew, not to mention a member of our bowling team, who work on THINGAMAJIG.They could lose their jobs if we buy that component from Hudson Bay.I really would appreciate anything you can do to make sure the costs analysis shows that we should continue making THINGAMAJIG.Corporate is not aware of materials cost increases and maybe you can leave out some of those fixed costs.I just think we should continue making THINGAMAJIG. "

Required:(Use MS Excel and Word only for answers - do not use the text box.)

1. Prepare relevant cost analysis that shows whether the Huron Division should make THINGAMAJIG or purchase it from Hudson Bay for 2019. Specifically,

(a) what is the relevant cost per unit to make and the relevant cost per unit to buy externally? (Round both answers to 2 decimal places).

(b) What is the total difference in relevant costs between the two alternatives, assuming a volume of 30,000 units?(Round answer to the nearest whole number).

2. Identify and briefly discuss the strategic factors that Huron should consider in this decision.