Dennis Company manufactures wheelbarrows. Management is interested in outsourcing production of the wheelbarrows to a reputable...

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Dennis Company manufactures wheelbarrows. Management is interested in outsourcing production of the wheelbarrows to a reputable manufacturing firm that will supply the wheelbarrows for $90 per unit. Dennis Company incurs the following annual production costs to produce 3,000 wheelbarrows internally: 4. Total annual Cost of 3,000 units Per unit Variable production costs: Direct materials Direct labor Manufacturing overhead $30 $15 $20 $90,000 $45,000 $60,000 Fixed production costs Factory lease Equipment lease Factory insurance Production supervisor's salary $80,000 $40,000 $25,000 $90,000 If production is outsourced, all variable production costs, equipment lease costs, and factory insurance will be eliminated. The production supervisor's salary will remain regardless of the decision to outsource or to produce internally because the supervisor recently signed a long-term contract with the company. The factory lease has five years remaining and cannot be terminated before then. REQUIRED Perform a differential analysis using an Excel spreadsheet in the format in Figure 7.2 of your textbook. Assume making the product internally is Alternative 1 and buying the product from an outside manufacturer is Alternative 2. Which alternative is the better? Explain. Dennis Company manufactures wheelbarrows. Management is interested in outsourcing production of the wheelbarrows to a reputable manufacturing firm that will supply the wheelbarrows for $90 per unit. Dennis Company incurs the following annual production costs to produce 3,000 wheelbarrows internally: 4. Total annual Cost of 3,000 units Per unit Variable production costs: Direct materials Direct labor Manufacturing overhead $30 $15 $20 $90,000 $45,000 $60,000 Fixed production costs Factory lease Equipment lease Factory insurance Production supervisor's salary $80,000 $40,000 $25,000 $90,000 If production is outsourced, all variable production costs, equipment lease costs, and factory insurance will be eliminated. The production supervisor's salary will remain regardless of the decision to outsource or to produce internally because the supervisor recently signed a long-term contract with the company. The factory lease has five years remaining and cannot be terminated before then. REQUIRED Perform a differential analysis using an Excel spreadsheet in the format in Figure 7.2 of your textbook. Assume making the product internally is Alternative 1 and buying the product from an outside manufacturer is Alternative 2. Which alternative is the better? Explain.

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Make Internally Buy Outside Alternative 1 Alternative 2 Variable Produ... View the full answer