The management of Swann Products, Inc., has been operating at below normal capacity, and there does...

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The management of Swann Products, Inc., has been operating at below normal capacity, and there does not appear to be an opportunity to add a new product line that will increase profit. The production manager suggests that a component, presently being purchased from Hart Supply Company, can be produced by the company. Normally 120,000 units of this component are needed each year. The cost to manufacture 120,000 units has been estimated as shown below: Direct materials.. Direct labor....... Variable overhead.... Additional fixed overhead if components are made... Allocated fixed overhead (150% of direct labor)... Total Cost $840,000 480,000 150,000 90,000 720,000 $2.280.000 This component can be purchased from Hart Supply Company at a price of $13.50 per unit. The sales manager objects to this plan, stating that Hart Supply Company is also a customer and that the company sells 40,000 units of a finished product to the supplier and that these units add $25,000 to profit each year. This market will be lost if purchases are not made from the supplier. Furthermore, only 80,000 units of the component will be needed if the sales are lost, inasmuch as 40,000 units of this component are used to make the product sold to Hart Supply Company. Required: a. Based upon the information given, should Swann Products, Inc., make the component or purchase it from Hart Supply Company? (8 marks) b. List at least 4 qualitative factors Swann should consider when making outsourcing decisions. (2 marks) The management of Swann Products, Inc., has been operating at below normal capacity, and there does not appear to be an opportunity to add a new product line that will increase profit. The production manager suggests that a component, presently being purchased from Hart Supply Company, can be produced by the company. Normally 120,000 units of this component are needed each year. The cost to manufacture 120,000 units has been estimated as shown below: Direct materials.. Direct labor....... Variable overhead.... Additional fixed overhead if components are made... Allocated fixed overhead (150% of direct labor)... Total Cost $840,000 480,000 150,000 90,000 720,000 $2.280.000 This component can be purchased from Hart Supply Company at a price of $13.50 per unit. The sales manager objects to this plan, stating that Hart Supply Company is also a customer and that the company sells 40,000 units of a finished product to the supplier and that these units add $25,000 to profit each year. This market will be lost if purchases are not made from the supplier. Furthermore, only 80,000 units of the component will be needed if the sales are lost, inasmuch as 40,000 units of this component are used to make the product sold to Hart Supply Company. Required: a. Based upon the information given, should Swann Products, Inc., make the component or purchase it from Hart Supply Company? (8 marks) b. List at least 4 qualitative factors Swann should consider when making outsourcing decisions. (2 marks)