Tu Stuff,Inc sells a wide range of drums, bins. boxes. and other contalners that are used In the chemical Industry, One of the company's products is a heavy-duty ccrrosion resistant metal drum, called the WVD drum. used to store tooc wastes. Production s constralned by the capacity of an automated welding machine that is used to make precislon welds. A total of 2460 hours of welding time ts avaltlable annually on the machine. Because each drum requires 04 hours of welding machine tme, annual production Is limred o 5.575 drurns. At present, the welding machine is used exclustvely to make the WVD drums The accounting department has provided the folowing financial data conceming the WVD drums Drums Selling price per dru Cost per drm: Direct materlals Dinect labor ($41 per hour) $ 241 , $52.10 nfacturing overhead Selling and adainistrative expense 13.2 34.0 113.00 in per ann S 2A.ee Management believes 7.475 WVD drums could be sold each year if the company had suffictent manufacturing capacity As an altemabve to adding another welding machtne, management has considered buying addional drums from an outside supplier. Harcor nc, a supplier of quality products, would be able to provide up to 4,575 wVD-ype drums per year at a prce of $207 per which TufStuff would resell to its customers at its normal selling price after appropnate relabeling Megan Fiores. TufStuff s production manager has suggested that the company could make better use of the welding machine by blke frames, which would require only 05 hours of welding machine tme per frame and yet sell for far more than the belleves that TufStuff could sell up to 2060 bike frames per year to bke manufacturers at a price of $354 each. The department has provided the following data concerning the proposed new product $354.8e Cost per irane .rect Direct Heo (518 per hour) Reufacturlng overhead sellig nd aeiustrativw epense 5123120 65.Ge 59.60 GG 20364.00 argle per frar 50.00 The bike frames c be produced with existing equipment and personnel Manufacturing overhead is allocated to products on the drect iaboraurs Most of the manufacturing overhead consists of fxed common costs such as rent on the factory building, The vartable manufacturing overhead has been ecumated at $135 per WWD drum and $190 per bike frame but some of ts vanalie vansble manfacimig ovenesd cost woud not be incurred on drums acqutred from the ourside supplier and adminct ans cxpeses are alocated to products on the basis of revenues. Almost al of the selling and administrative expenses are fxed cormnion costs, out it has been ectimated that variable selting and administratve expensec amount to $.75 per WVD drum wnezher mada or purchase 1 and would be $3,60 per bike frame