Oxford Engineering manufactures small engines. The engines are sold to manufactu
ID: 2373288 • Letter: O
Question
Oxford Engineering manufactures small engines. The engines are sold to manufacturers who install them in such products as lawn mowers. The company currently manufactures all the parts used in these engines but is considering a proposal from an external supplier to supply the starter assembly used in these engines.
The starter assembly is currently manufactured in Division 3 of Oxford Engineering. Last year, Division 3 manufactured 132,000 starter assemblies, but over the next several years, it is expected that 170,000 assemblies will be needed each year. Per-unit costs related to the starter assembly for last year were as follows:
Further analysis of overhead revealed the following information:
Tidnish Electronics, a reliable supplier, has offered to supply starter assembly units at $5.50 per unit. If the company buys the assembly from Tidnish, sales of another product can be increased, resulting in additional contribution margin of $42,000.
REQUIRED
1. By how much will Oxford Engineering's total profits change if they decide to buy the starter assembly from Tidnish Electronics instead of making it themselves? (Note: if the buy costs are less than the make costs, enter the difference as a positive number; if the make costs are less than the buy costs, enter the difference as a negative number.)
Explanation / Answer
refered chegg data base Please refer it and ask for any doubts ill help you, http://www.chegg.com/homework-help/questions-and-answers/oxford-engineering-manufactures-small-engines-engines-sold-manufacturers-install-products--q4075489 DM=$266000/148000=$1.79 DL=$227,920/148,000=$1.54 OH=$444,000/148,000=$3 VCU=40%($3)=$1.20 FCU=$3-$1.20=$1.80 Make: DM=$1.79*171,000=$306,090 DL=$1.54*171,000=$263,340 VOH=171,000*$1.20=205,200 FOH=148,000*$1.80=266400 Total Annual Cost=$1041030 Buy: DM=$0 DL=$0 VOH=$0 FOH=$118,000 Purchase=171,000*$6.80=$1,162,800 Total Annual Cost=$1,280,800 $1,041,030+36,000-$1,280,800= ($203770) Profit will increase by $203770 Please rate now. Thank you
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