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 2006 and the expected costs in 2007:

Svenson manufactured 8,000 CMCBs in 2006 in 40 batches of 200 each. In 2007, 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 2007 at $300 per CMCB on whatever delivery schedule Svenson wants.
Required
1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2007.
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.
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 the following incremental revenues and costs from CB3s:
Total expected incremental future revenues ........................ $2,000,000
Total expected incremental future costs ............................. $2,150,000
On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.

Transcribed Image Text:

Current Costs in 2006 Expected Costs in 2007 Variable manufacturing costs Direct material cost per CMCB Direct manufacturing labor cost per CMCB Variable manufacturing cost per batch for $ 180 50 S 170 45 setups, materials handling, and quality control 1,600 1,500 Fixed mapufacturing cost Fixed manufacturing overhead costs that can be avoided if CMCBs are not made 320,000 320,000 Fixed manufacturing overhead costs of plant depreciation, insurance, and administration that cannot be avoided even if CMCBs are not made 800,000 800,000