Question

The Svenson Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2012 and the expected costs in 2013:
Svenson manufactured 8,000 CMCBs in 2012 in 40 batches of 200 each. In 2013, Svenson anticipates needing 10,000 CMCBs. The CMCBs would be produced in 80 batches of125 each. The Minton Corporation has approached Svenson about supplying CMCBs to Svensonin 2013 at $300 per CMCB on whatever delivery schedule Svenson 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 Svenson purchases CMCBs from Minton. On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.
3. Now suppose that if Svenson purchases CMCBs from Minton, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards (CB3s) to the Essex Corporation. Svenson estimates the following incremental revenue and costs from CB3s:461Decision Making and Relevant Information
Total expected incremental future revenues .......... $2,000,000
Total expected incremental future costs ............. $2,150,000
On the basis of financial considerations alone, should Svenson make CMCBs or buy them from Minton? Show your calculations.


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  • CreatedJuly 31, 2015
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