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Waverly Company Ltd. currently produces 8,000 units per year of SB 200 (snowboard), which is a component of the company's major products. SB 200 has

Waverly Company Ltd. currently produces 8,000 units per year of SB 200 (snowboard), which is a component of the company's major products. SB 200 has the following unit cots

Direct materials - $35.50

Direct labour - 20.00

Indirect costs

  • indirect labour (variable) - 7.75
  • Heat and power (variable) - 2.25
  • Fixed overhead - 38.50

total cost per unit - $104.00

Waverly expects future annual demand for SB 200 to increase to 11,000 units starting next year, which present capacity. A supplier has offered to supply 11,000 units of SB 200 at $89 per unit. If Waverly decided to purchase the required sb 200, they can avoid fixed cost of $9.50 per unit based on the current production of 8,000 units per year

Required

  1. should wavily company subcontract the production of SB 200? show calculations
  2. assume that wavily could rent out the vacant area resulting from discontinuing production of SB 200 for $225,000 per year. does this change the descsion you made in question 1
  3. Explain any two qualitative factors the would also be relevant to the decision to make or buy SB 200

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