Kentucky Motors has manufactured compressor parts at its plantin Pitcairn, India
ID: 2433844 • Letter: K
Question
Kentucky Motors has manufactured compressor parts at its plantin Pitcairn, Indiana, for the past 18 years. AN outsidesupplier, Superior Compressor Company, has offered to supplycompressor model A238 at the price of 200 per unit. Unitmanufacturing costs for A238 are as follows: Directmaterials 80 Directlabor 60 Unit relatedsupport 26 Batch relatedsupport 22 Product sustaining support 8 Facility sustaining support 17 Totalcosts $213 a. Should SUperior Compressor's offer be accepted if theplant is presently operating below capacity? b. What is the maximum acceptable purchase price if theplant facilities are fully utilized at present and if anyadditional available capacity can be deployed for the production ofother compressors? Kentucky Motors has manufactured compressor parts at its plantin Pitcairn, Indiana, for the past 18 years. AN outsidesupplier, Superior Compressor Company, has offered to supplycompressor model A238 at the price of 200 per unit. Unitmanufacturing costs for A238 are as follows: Directmaterials 80 Directlabor 60 Unit relatedsupport 26 Batch relatedsupport 22 Product sustaining support 8 Facility sustaining support 17 Totalcosts $213 a. Should SUperior Compressor's offer be accepted if theplant is presently operating below capacity? b. What is the maximum acceptable purchase price if theplant facilities are fully utilized at present and if anyadditional available capacity can be deployed for the production ofother compressors?Explanation / Answer
a. Should Superior Compressor's offer be accepted if theplant is presently operating below capacity? If Kentucky Motors is operating below capacity then itshould not accept the Superior Compressor's offer for $200 perunit. Because the Facility sustaining support $17 would be added toPurchase price of $200 and the relevant cost would be $217 per unitwhich is more than in-house manufacturing cost of $213. _____________________________________________________________________________________________ b. What is the maximum acceptable purchase price if theplant facilities are fully utilized at present and if anyadditional available capacity can be deployed for the production ofother compressors? b. What is the maximum acceptable purchase price if theplant facilities are fully utilized at present and if anyadditional available capacity can be deployed for the production ofother compressors? If additional available capacity can be deployed for theproduction of other compressors then Facility sustainingsupport for compressor model A238 would be allocated toother compressors. In that case, the maximum purchase price wouldbe ($213 - $17) = $196.Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.