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:
Direct material ....... $ 53 (including mounting hardware @ $ 15 per unit)
Direct labor ......... 17
Overhead (2/ 3 is fixed) .. 45
Total ......... $ 115
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.)

  • CreatedJune 03, 2014
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