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The Strubel Company currently makes as many units of Part No 789 as it needs David Lin general manager of the Strubel Company has received

The Strubel Company currently makes as many units of Part No. 789 as it needs. David Lin, general manager of the Strubel Company, has received a bid from the Gabriella Company for making Part No. 789. Current plans call for Gabriella to supply 1,000 units of Part No. 789per year at $60 a unit. Gabriella can begin supplying on January 1, 2013, and continue for five years, after which time Strubel will not need the part. Gabriella can accommodate any change in Strubel’s demand for the part and will supply it for $60 a unit, regardless of quantity. Jack Tyson, the controller of the Strubel Company, reports the following costs for manufacturing 1,000 units of Part No. 789: Direct materials................. $26,400 Direct manufacturing labour........... 13,200 Variable manufacturing overhead......... 8,400 Amortization on machine............. 12,000 Product and process engineering........... 4,800 Rent...................... 2,400 Allocation of general plant overhead costs....... 6,000 Total costs................... $73,200 The following additional information is available: a. Part No. 789 is made on a machine used exclusively for the manufacture of Part No. 789. The machine was acquired on January 1, 2012, at a cost of $72,000. The machine has a useful life of six years and zero terminal disposal price. Amortization is calculated on the straight-line method. b. The machine could be sold today for $18,000. c. Product and process engineering

Apr 09 2020 View more View Less

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