Problem 7-106 [LO 4]

Red Hawk currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $12. Red Hawk currently produces 80,000 subcomponents at the following manufacturing costs:

	Per unit
Direct materials	$	4.50
Direct labor		3.00
Variable manufacturing overhead		3.50
Fixed manufacturing overhead		2.50
Unit cost		13.50

a.	If Red Hawk has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier? (Input the amount as positive value. Omit the "$" sign in your response.)

(Click to select)Less profitMore profit

$

b.	If Red Hawk has no alternative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier? (Omit the "$" sign in your response.)

Maximum price

$ per unit

c.	Now assume Red Hawk would avoid $120,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?(Input the amount as positive value. Omit the "$" sign in your response.)

(Click to select)Less profitMore profit

$