The management of EH Canada, a Canadian Consumer Electronics Manufacturer, is trying to decide whether to continue manufacturing a Smart TV component or to buy it from an outside supplier The part, called CLEVER, is a component of the companys finished product The following information was collected from the accounting records and production data for the year ending December 31, 2020 Variable manufacturing costs applicable to the production of each CLEVER unit were direct materials of $4 90 direct labour $4 39 Indirect labour $0 44 and utilities $0 41 The component department produced 9,000 units of CLEVER during the year Fixed manufacturing costs applicable to the production of the CLEVER were as follows Cost Item Direct Allocated Depreciation $2,142 $925 Property Taxes 510 225 Insurance 918 625 Total $3,570 $1,775 The company will eliminate all variable manufacturing and direct fixed costs if it purchases CLEVER Allocated costs will have to be absorbed by other production departments The lowest quotation for 9,000 CLEVER units from a supplier is $99,000 If CLEVER units are purchased, freight and inspection costs would be $0 36 per unit, and the machining department would incur receiving costs totaling $1,325 per year INSTRUCTIONS Prepare incremental cost analysis for CLEVER Your analysis should have columns for 1) Make CLEVER both per unit cost and total cost 2) Buy CLEVER both per unit cost and total cost Based on your quantitative analysis what decision should management make and why Would the decision be different if EH Canada had the opportunity to produce $10,000 of net income with the facilities currently being used to manufacture CLEVER Show calculations Based on this revised analysis, what decision should management make What are the qualitative considerations that management should consider when making its decision Provide a minimum of 3 pros and 3 cons to outsourcing CLEVER Based on this analysis, does this impact the decision from (c)

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The management of EH Canada, a Canadian Consumer Electronics Manufacturer, is trying to decide whether to continue manufacturing a Smart TV component or to buy

The management of EH Canada, a Canadian Consumer Electronics Manufacturer, is trying to decide whether to continue manufacturing a Smart TV component or to buy it from an outside supplier. The part, called CLEVER, is a component of the companys finished product.

The following information was collected from the accounting records and production data for the year ending December 31, 2020:

Variable manufacturing costs applicable to the production of each CLEVER unit were direct materials of $4.90; direct labour $4.39; Indirect labour $0.44; and utilities $0.41.
The component department produced 9,000 units of CLEVER during the year.
Fixed manufacturing costs applicable to the production of the CLEVER were as follows:

Cost Item	Direct	Allocated
Depreciation	$2,142	$925
Property Taxes	510	225
Insurance	918	625
Total	$3,570	$1,775

The company will eliminate all variable manufacturing and direct fixed costs if it purchases CLEVER. Allocated costs will have to be absorbed by other production departments.

The lowest quotation for 9,000 CLEVER units from a supplier is $99,000
If CLEVER units are purchased, freight and inspection costs would be $0.36 per unit, and the machining department would incur receiving costs totaling $1,325 per year.

INSTRUCTIONS

Prepare incremental cost analysis for CLEVER. Your analysis should have columns for:

- 1) Make CLEVER both per unit cost and total cost

- 2) Buy CLEVER both per unit cost and total cost

Based on your quantitative analysis what decision should management make and why?

Would the decision be different if EH Canada had the opportunity to produce $10,000 of net income with the facilities currently being used to manufacture CLEVER? Show calculations. Based on this revised analysis, what decision should management make?

What are the qualitative considerations that management should consider when making its decision? Provide a minimum of 3 pros and 3 cons to outsourcing CLEVER. Based on this analysis, does this impact the decision from (c)?