MR WONDERFUL CORPORATION manufactures widgets. Currently, the company is scheduled to manufacture and sell 8,000 of...

Transcribed Image Text:

MR WONDERFUL CORPORATION manufactures widgets. Currently, the company is scheduled to manufacture and sell 8,000 of the Type A widget during the upcoming year. The usual selling price of a Type A widget is $73. The following per-unit costs are estimated in connection with the production of one Type A widget: Direct materials Direct labor Manufacturing overhead: Variable Fixed Selling costs: Commissions Shipping Fixed $ 5.00 6.00 7.00 8.00 1.00 1.50 1.00 $ 29.50 - ZOOM Commissions and shipping are considered variable. They are considering the outsourcing of the production of Type A widgets to a foreign producer, who has offered to produce the 8,000 Type A widgets at a per- unit cost of $35. The following additional information is available if they choose to buy the Type A widget, rather than produce it internally: 1) The production of the Type A widget requires two supervisors, each of whom earns a fixed salary of $50,000 per year. One of these supervisors would be reassigned to the Type B widget production. The other would, unfortunately, have to be let go. 2) The freed-up capacity could be used to product more of their signature Type B widget, which would generate an additional contribution margin of $75,000. Should the offer from the foreign supplier be accepted? Yes or No, and by how much? + K --------- MR WONDERFUL CORPORATION manufactures widgets. Currently, the company is scheduled to manufacture and sell 8,000 of the Type A widget during the upcoming year. The usual selling price of a Type A widget is $73. The following per-unit costs are estimated in connection with the production of one Type A widget: Direct materials Direct labor Manufacturing overhead: Variable Fixed Selling costs: Commissions Shipping Fixed $ 5.00 6.00 7.00 8.00 1.00 1.50 1.00 $ 29.50 - ZOOM Commissions and shipping are considered variable. They are considering the outsourcing of the production of Type A widgets to a foreign producer, who has offered to produce the 8,000 Type A widgets at a per- unit cost of $35. The following additional information is available if they choose to buy the Type A widget, rather than produce it internally: 1) The production of the Type A widget requires two supervisors, each of whom earns a fixed salary of $50,000 per year. One of these supervisors would be reassigned to the Type B widget production. The other would, unfortunately, have to be let go. 2) The freed-up capacity could be used to product more of their signature Type B widget, which would generate an additional contribution margin of $75,000. Should the offer from the foreign supplier be accepted? Yes or No, and by how much? + K ---------