Dionne currently manufactures a subcomponent that is used in

Dionne currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $120. Dionne currently produces 20,300 subcomponents at the following manufacturing costs:

If Dionne has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier? (Input the amount as positive value. Omit the \"$\" sign in your response.)

If Dionne has no alternative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier? (Omit the \"$\" sign in your response.)

Now assume Dionne would avoid $321,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier? (Input the amount as positive value. Omit the \"$\" sign in your response.)

Dionne currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $120. Dionne currently produces 20,300 subcomponents at the following manufacturing costs:

Solution

Manufactured Purchased outside Per unit   Direct materials $ 43   Direct labor 32   Variable manufacturing overhead 40 Variable cost 115 Purchase cost 120 Fixed Overhead 23 Fixed OH 23 total cost 138 Total unit cost 143 More profit Less profit Note: Fixed costs are to be incurred even when purchased from outside. Hence unit total cost is higher for purchase from outside So manufacturing inside is better. Maximum price willing 138 If 321000 fixed cost is reduced per unit fixed oh would be lessened by 321000/20300 15.81281 Unit cost 122.1872 127.1872 Even then manufacturing is profitable.