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PROBLEM 19.45 (40 minutes) Outsourcing decision; relevant costs; ethics: manufacturer
1. (a) An analysis of the relevant costs that shows whether the Victorian Division of HMC should make JY-65 or purchase it from Marley Company is as follows:

Amount
per unit
Total for
32 000 units

Cost to purchase JY-65 from Marley:

 Bid price from Marley
$8.65
276 800

 Equipment lease penalty ($18 000/12)  2

   3 000

 Total cost to purchase

$279 800

Cost for Victorian to make JY-65:

 Direct material ($97 500/30 000)  1.08
$3.51
$112 320

 Direct labour ($60 000/30 000)  1.05
2.10
67 200

 Variable manufacturing overhead ($112 500  .4)/30 000
1.50
48 000

 Factory space rental

42 000

 Equipment leasing costs

  18 000

 Total cost to make

$287 520

Cost savings if purchased from Marley

$ (7 720)
(b) Based solely on the financial results, the 32 000 units of JY-65......

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Approximate Word Count: 754
Approximate Pages: 4 (250 words per double-spaced page)

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