The Svenson Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2017 and the expected costs in 2018:

Current Costs ...........................................................................................2017 ..................................Expected Costs in in 2018

Variable manufacturing costs

* Direct material cost per CMCB.................. ...............................................180 ......................................... $170

* Direct manufacturing labour cost per CMCB............................................... 50............................................... 45

* Variable manufacturing cost per batch for setups, material.........................1,600 .....................................1,500

handling, and quality control

* Fixed manufacturing cost

* Fixed manufacturing overhead costs ............................................................320000 .............................320000

that can be avoided if CMCBs

are not made

* Fixed manufacturing overhead costs of plant depreciation,..................................... 800000 ...............800000

insurance, and administration that cannot be avoided even if

CMCBs are not made

Make-versus-buy information

Svenson manufactured 8,000 CMCBs in 2017 in 40 batches of 200 each. In 2018, Svenson anticipates needing 10,000 CMCBs. The CMCBs would be produced in 80 batches of 125 each. The Minton Corporation has approached Svenson about supplying CMCBs to Svenson in 2018 at $300 per CMCB on whatever delivery schedule Svenson wants.

Requirement 3. Now suppose that if Svenson purchases CMCBs from Minton, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation. Svenson estimates incremental revenues from selling CB3s to be $2,000,000, and incremental costs from making CB3s to be $2,150,000. On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton?

Show your calculations. (Complete all answer boxes. For amounts with a $0 balance, make sure to enter "0" in the appropriate cell.)

	Choices for Svenson
	Make CMCBs	Buy CMCBs	Buy CMCBs
	and Do Not	and Do Not	and Make
Relevant Items	Make CB3s	Make CB3s	CB3s
Total incremental costs of	?	?	?
making/buying CMCBs (from	?	?	?
requirement 2)
Excess of future costs over future
revenues from CB3s
Total relevant costs	?	?	?

I am sorry this is not very organized, please help with requirement 3. Thank you

Requirement 1. Calculate the total expected manufacturing cost per unit of making CMCBs in

2018.

	Total Manufacturing	Manufacturing
	Costs of CMCB	Cost per Unit
Direct materials	$1,700,000	$170
Direct manufacturing labour	450,000	45
Variable batch manufacturing costs	120,000	12
Fixed manufacturing costs
Avoidable fixed manufacturing costs	320,000	32
Unavoidable fixed manufacturing costs	800,000	80
Total manufacturing costs	$3,390,000	$339

Requirement 2. Suppose the capacity currently used to make CMCBs will become idle if Svenson purchases CMCBs from Minton. On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations. (If a box is not used in the table, leave the box empty; do not enter a zero.)

	Make		Buy
	Total	Per Unit	Total	Per Unit
Direct materials	$1,700,000	$170
Direct manufacturing labour	450,000	45
Variable batch manufacturing costs	120,000	12
Avoidable fixed manufacturing costs	320,000	32
Purchase cost			3,000,000	300.000
Total relevant costs	$2,590,000	$259	$3,000,000	$300

Svenson should make CMCBs because it costs less to make than to buy.