The VitalChef Corporation manufactures cooking robots. It manufactures its own core engine

(CE), a key component that determines the robot processing capacity. It reports the following cost

information about the costs of making CEs in 2019 and the expected costs in 2020:

Current Expected

Costs in 2019. Costs in 2020

Variable manufacturing costs

Direct material cost per CE $270 $255

Direct manufacturing labor cost per CE 75 67.5

Variable manufacturing costs per batch for setups, materials 2,400 2,250

handling and quality control

Fixed manufacturing cost

Fixed manufacturing overhead costs that can be avoided if CEs are 480,000 480,000

not made

Fixed manufacturing overhead costs of plant depreciation,

insurance, and administration that cannot be avoided even if CEs 1,200,000 1,200,000

are not made

VitalChef manufactured 8,000 CEs in 2019 in 40 batches of 200 each. In 2020, VitalChef

anticipates needing 10,000 CEs. The CEs would be produced in 80 batches of 125 each.

The Blir Corporation has approached VitalChef about supplying CEs to VitalChef in 2020 at

$450 per CE on whatever delivery schedule VitalChef wants.

1. Calculate the total expected manufacturing cost per unit of making CEs in 2020.

2. Suppose the capacity currently used to make CEs will become idle if VitalChef purchases CEs

from Blir. On the basis of financial considerations alone, should VitalChef make CEs or buy

them from Blir? Show your calculations.

3. Now suppose that if VitalChef purchases CEs from Blir, its best alternative use of the capacity

currently used for CEs is to make and sell special core engines (CEXs) to the Clarix

Corporation. VitalChef estimates the following incremental revenues and costs from CEXs:

Total expected incremental future revenues $3,000,000

Total expected incremental future costs $3,275,000

On the basis of financial considerations alone, should VitalChef make CEs or buy them from

Blir? Show your calculations.

4. What other factors aside from financial considerations should VitalChef take into account?