Question

instant Enterprises manufactures one of the components used to assemble its main company product Specialty Products, This current cost per unit is based on the folowing callcufations component, based on the 115,000 components that instant Enterprises currently produces. Read the tequirements see current cost is $13.50 per unvt ofthhe icon to view the information) None of Instant Enterprises' fxed costs will be eliminated if the component is outsourced However, the treed capacity couid be used to build a new product This new product would be expected to generate $32,000 of contribution margin per year Requirer ent 1.Η in tart Enterprises ots urces he maru actumg Of the component, włoce atr cost to make exceeds the cost to buy) income increase or decrease? how much fer a r t any 2 ro balances n a paent ese i the se ani men r courr when e Incremental Analysis Make i Outsource Difference Data Table Variable costs Plus. Fixed costs Total cost of 115,000 components Less: Profit from ancther product Net cost Direct material per unit Direct labor per unit va欣ie manufacturing ơverhead per unt 3.75 1.00 1.75 13.50 lf Instant Enterprises outsources the manufacturing of the component, Operating income wil L 」by s L. Fixed manutacturing overhead per unit Total manufacturing costs per unit Requirement 2. What is the maúmum price per unt Instant Enterprises would be wiling to pay if it outsources the component Begin by identifying the basic formula that is used to delermine the indfMerent outsourcing cost per unit Print Done Cost if making 115,000 components Cost if outsaurcing 115.000 components Using the basic formula you determined above solve for the indifferent outsourcing cost per unit (Round your answer to the nearest cent, Sx0x) Choose trom any list or anler any number in the input felds and then continue to the next question Instant Enterprises manufactures one of the components used to assemble its main company product. Specialty Products This current cost per unit is based on the following calculations inc., has offered to make the component at a cost of $12 40 per unit Instant Enterprnses current cost is $13 50 per unit of the component, based on the 115,000 components that Instant Enterprises currenty produces Read the requirements EB (Click the icon to view the information) None of Instant Enterprises fixed costs will be eliminated if the component is outsourced. However, the freed be used to build a new product. This new product would be expected to generate $32,000 of contribution margin p cap cost to make exce0ds triecošlto buy厂 Incremental Analysis Make Outsource Difference Vanable costs Plus. Fixed costs Total cost of 115,000 components Less: Profit trom another product Net cost Data Table If Instant Enterprises outscurces the manufacturing of the component, operating income wiys Requirement 2. What is the masimum price per unit Instant Enterpises wouid be willing to pay if it outsources the component? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit Direct material per unit Direct labor per unit Variable manufactuning overhead per unit Fixed manufacturing overhead per unit 3 75 7.00 .00 1.75 13.50 S Total manufacturing costs per unt Cost if making 115,000 components Cost if outsourcing 115,000 components Print Done Using the basic formula you determined above solve for the indifferenit outsourcing cost per unit. (Round your answer to the nearest cent, sx.xXX) The maximum price per unit Instant Enterprises would be willing to pay if it outsources the component is s Choose from any list or enter any number in the input fields and then continue to the next question. per unit

Answer 1

Incremental Analysis:

	Make	Buy	Difference
Variable Costs	11.75*115,000 = 1,351,250	12.40*115,000 = 1,426,000	74,750
Plus: Fixed Costs	201,250	201,250	0
Less: Profit from another product	0	32,000	(32,000)
Net Cost	1,552,500	1,595,250	42,750

If it outsources, the operating income will DECREASE by $42,750

2.Maximum price will be such that

Cost of making = Cost of outsourcing

= (1,552,500+32,000)/115,000

= $13.78 per unit

Since additional profit of $32,000 will be generated when outsourced.