The
Sundance
Corporation manufactures cellular modems. It manufactures itsown cellular modem circuit boards? (CMCB), an important part of thecellular modem. It reports the following cost information about thecosts of making CMCBs in
2017
and the expected costs in
2018?:
Current Costs
Expected Costs
in 2017
in 2018
Variable manufacturing costs
Direct material cost per CMCB
$190
$188
Direct manufacturing labor cost per CMCB
25
27
Variable manufacturing cost per batch for setups, materials
handling, and quality control
1,750
1,700
Fixed manufacturing cost
Fixed manufacturing overhead costs that can be avoided ifCMCBs
are not made
665,000
170,000
Fixed manufacturing overhead costs of plant depreciation,
insurance, and administration that cannot be avoided even if
CMCBs are not made
855,000
850,000
manufactured
9,500
CMCBs in
2017
in
50
batches of
190
each. In
2018?,
Sundance
anticipates needing
17,000
CMCBs. The CMCBs would be produced in
100
batches of
170
each. The
Mobey
Corporation has approached
Sundance
about supplying CMCBs to
Sundance
in
2018
at
$350
per CMCB on whatever delivery schedule
Sundance
wants.
1.
Calculate the total expected manufacturing cost per unit ofmaking CMCBs in
2018.
2.
Suppose the capacity currently used to make CMCBs will becomeidle if
Sundance
purchases CMCBs from
Mobey.
On the basis of financial considerations? alone, should
Sundance
make CMCBs or buy them from
Mobey??
Show your calculations.
3.
Now suppose that if
Sundance
purchases CMCBs from
Mobey?,
its best alternative use of the capacity currently used forCMCBs is to make and sell special circuit boards? (CB3s) to the
Elle
Corporation.
Sundance
estimates the following incremental revenues and costs from?CB3s:
Total expected incremental future revenues
$1,800,000
Total expected incremental future costs
$1,920,000
On the basis of financial considerations? alone, should
Sundance
make CMCBs or buy them from
Mobey??
Show your calculations.
