Too Tall Cranes manufactures large cranes for use in construction projects. The company has historically always produced the whole crane, including steering columns. However, this year a company contacted them and asked if they would be interested in purchasing steering columns at a cost of $500 per column. The steering columns have the following internal cost information:

Per Unit 500 Units

Direct Materials $215 $107,500

Direct Labour $200 $100,000

Variable manufacturing overhead $85 $42,500

Rent $25 $12,500

Manager Salary $45 $22,500

Amortization of specialized-

equipment $15 $7,500

Total Cost $858 $292,500

Required:

1. Show a calculation for both per unit & at 500 units to determine if Too Tall Cranes should accept the outside suppliers offer to manufacture the crane, including a discussion on avoidable or unavoidable costs for all listed costs above
2. Suppose that if they purchase the steering column, Too Tall Cranes can now manufacture a new line of smaller mountable cranes. The segment margin would be $15,000 per year. Should they accept the offer to outsource the steering columns. Show all work.