Question

The Summer Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. The company reports the following cost information about the costs of making CMCBs in 2012 and the expected costs in 2013:


Summer manufactured 16,200 CMCBs in 2012 in 80 batches of 190 each. In 2013, Summer anticipates needing 17,000 CMCBs. The CMCBs would be produced in 100 batches of 170 each. The Manson Corporation has approached Summer about supplying CMCBs to Summer in 2013 at $ 280 per CMCB on whatever delivery schedule Summer wants.

Required
1. Calculate the total expected manufacturing cost per unit of making CMCBs in 2013.
2. Suppose the capacity currently used to make CMCBs will become idle if Summer purchases CMCBs from Manson. On the basis of financial considerations alone, should Summer make CMCBs or buy them from Manson? Show your calculations.
3. Now suppose that if Summer purchases CMCBs from Manson, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation. Summer estimates the following incremental revenues and costs from CB3s:
Total expected incremental future revenues $ 2,200,000
Total expected incremental future costs $ 2,425,000
On the basis of financial considerations alone, should Summer make CMCBs or buy them from Manson? Show yourcalculations.


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  • CreatedJanuary 15, 2015
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