Outsourcing Tuff Tach produces pickup truck bumpers that are sold on a wholesale
ID: 2462135 • Letter: O
Question
Outsourcing
Tuff Tach produces pickup truck bumpers that are sold on a wholesale basis to new car retailers. The average bumper sales price is $170. Normal annual sales volume is 300,000 units, which is the company’s maximum production capacity. At this capacity, the company’s per-unit costs are as follows:
A key component in producing bumpers is the mounting hardware used to attach the bumpers to the vehicles. Birmingham Mechanical has offered to sell Tuff Tach as many mounting units as the company needs for $20 per unit. If Tuff Tach accepts the offer, the released facilities currently used to produce mounting hardware could be used to produce an additional 4,800 bumpers.
What alternative is more desirable and by what amount? (Assume that the company is currently operating at its capacity of 300,000 units.)
Explanation / Answer
The current alternative is more desirable bu $ 1,260,000
Current secnario Total for 300,000 Direct material 53 15,900,000 Direc Labor 17 5,100,000 Overhead fixed 30 9,000,000 Overhead variable 15 4,500,000 Total 115 34,500,000 Sales price 170 51,000,000 Profit per unit 55 16,500,000 Alternative Total for 304,800 Direct material 38 11,582,400 Direc Labor 17 5,181,600 Overhead fixed 30 9,000,000 Overhead variable 15 4,572,000 Mounting hardware 20 6,096,000 Total 120 36,576,000 Sales price 51,816,000 Profit 15,240,000 Difference - 1,260,000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.