Kramer Company, makes 3,000 units every year of a component called Axial Tap for use in...

 

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Kramer Company, makes 3,000 units every year of a component called Axial Tap for use in one of its products. Data concerning the unit production costs of the axial tap for Kramer Company is given follow: Direct Material $33 Direct Labor $10 Variable Manufacturing Overhead $7 Fixed Manufacturing Overhead* $20 Total Manufacturing Cost per $70 unit * based on 3,000 units of production, all of it is Traceable Fixed Cost. Hubbert Company, also produces Axial Taps. Hubbert wants to supply all Axial taps to Kramer Company. Hubbert is considering to offer selling price of $66/unit to Kramer. If Hubbert supplies the taps, Kramer Company can discontinue making the Axial Taps, as a result 40% of the above fixed manufacturing overhead cost could be saved. Assume that direct labor is a variable cost. Moreover, Kramer Company could use the facilities presently devoted to production of the Axial Taps to expand production of another product that would increase contribution margin of the other product by $35,000 annually. Hubbert Company's normal Contribution Margin for Axial Taps is $18/unit. However, expected Contribution Margin from selling to Kramer is $1/unit. Hubert Company still wants to sell to Kramer for long term strategic purposes. Hubbert will lose 2,000 units of sales to other customers for fulfilling the requirements of Kramer Company because of capacity. This proposal is not finalized yet and Kramer and Hubber are reviewing this proposal separately. From Kramer's perspective, identify the relevant costs for making the make or buy decision about Hubbert's offer. OA Variable Manufacturing Overhead Kramer's contribution margin O B. OC. Hubbert's selling price Hubbert's contribution margin OD. OE Hubbert's lost sales O. Kramer's selling price OG Direct Material OH. Direct Labor O. Fixed Manufacturing Overhead Kramer Company, makes 3,000 units every year of a component called Axial Tap for use in one of its products. Data concerning the unit production costs of the axial tap for Kramer Company is given follow: Direct Material $33 Direct Labor $10 Variable Manufacturing Overhead $7 Fixed Manufacturing Overhead* $20 Total Manufacturing Cost per $70 unit * based on 3,000 units of production, all of it is Traceable Fixed Cost. Hubbert Company, also produces Axial Taps. Hubbert wants to supply all Axial taps to Kramer Company. Hubbert is considering to offer selling price of $66/unit to Kramer. If Hubbert supplies the taps, Kramer Company can discontinue making the Axial Taps, as a result 40% of the above fixed manufacturing overhead cost could be saved. Assume that direct labor is a variable cost. Moreover, Kramer Company could use the facilities presently devoted to production of the Axial Taps to expand production of another product that would increase contribution margin of the other product by $35,000 annually. Hubbert Company's normal Contribution Margin for Axial Taps is $18/unit. However, expected Contribution Margin from selling to Kramer is $1/unit. Hubert Company still wants to sell to Kramer for long term strategic purposes. Hubbert will lose 2,000 units of sales to other customers for fulfilling the requirements of Kramer Company because of capacity. This proposal is not finalized yet and Kramer and Hubber are reviewing this proposal separately. From Kramer's perspective, identify the relevant costs for making the make or buy decision about Hubbert's offer. OA Variable Manufacturing Overhead Kramer's contribution margin O B. OC. Hubbert's selling price Hubbert's contribution margin OD. OE Hubbert's lost sales O. Kramer's selling price OG Direct Material OH. Direct Labor O. Fixed Manufacturing Overhead

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