The Wharton company produces chairs. This years expected production is 25000 units. Currently they make the upholstery for the chairs in the factory. Wharton's management accountant reports the following cost for the upholstery for 25000 chairs.

Wharton has received an offer from an outside vendor to supply the upholstery for the chairs Wharton requires at $18.00 per chair.

Cost per Unit Cost of 25,000 Units

Direct Materials $4.25 $106,250

Variable Direct Manufacturing Labor $2.00 $50,000

Variable Manufacturing Overhead .90 $22,500

Variable Inspection, setup, materials handling $250,000

Allocated Fix Cost of plant administration, taxes and insurance $35,000

Total Cost $463,750

Assume that if the outside vendor supplies the upholstery, the facility where the upholstery is currently made will remain idle. One of the basis of financial considerations alone, should Wharton accept the outside vendors offer at anticipated volume of 25000 chairs? Show your calculations

1. Assume that if the outside vendor supplies the upholstery, the facility where the upholstery is currently made will remain idle. On the basis of financial considerations alone, should Wharton accept the outside vendor's offer at the anticipated volume of 25,000chairs? Show your calculations.

Relevant Cost Make Buy

2. For this question, assume that if the upholstery is purchased outside, the available unused facilities will be used to make pillows to match the chairs. Each pillow sells for$24 with a variable cost of $19. No other costs would change and the company expects to sell 10,000 pillows. On the basis of financial considerations alone, should Wharton make or buy the upholstery for their chairs, assuming that 25,000 chairs are produced (and sold)? Show your calculations.

3. The sales manager at Wharton is concerned that the estimate of 25,000 chairs may be high and believes that only 21,000 chairs will be sold. Production will be cut back, freeing up work space. This space can be use to make 10,000 pillows whether Wharton buys the upholstery or makes it in-house. On the basis of financial considerations alone, should Wharton purchase the upholstery from the outside vendor? Show your calculations.