Wyoming Corporation produces heavy equipment for military applications. As part
ID: 2525857 • Letter: W
Question
Wyoming Corporation produces heavy equipment for military applications. As part of this process, it currently manufactures a fuel valve; the cost of the valve is indicated below:
$2,170
The company has an offer from an outside valve manufacturer to produce the part for $1,850 per unit and supply 1,000 valves (the number needed in the coming year).
If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas needing their services.
The equipment cannot be used elsewhere in the company, and it has no market value.
The space occupied by the production of the valve can, however, be used by another production group of the company that is currently leasing space for $41,000 per year.
REQUIRED:
What are the costs involved should they decide to outsource the production of the valves?
What are the benefits involved should they decide to outsource the production of the valves?
Should they outsource the production of the valves or continue to manufacture them?
In negotiating with the outside vendor, what is the MAXIMUM price that the company could offer the outside manufacturer without losing money on this decision.
List and explain TWO qualitative factors that the company might address as part of this decision.
unit cost variable costs direct materials $900 direct labor $530 variable overhead $240 total variable costs 1,670 fixed costs equipt. Depreciation $300 building depreciation $100 supervisory salaries $100 total fixed cost $500 total unit cost$2,170
Explanation / Answer
a) Costs involved in outsourcing:
b) Benefits of outsourcing
c) They should outsource the production of valves becuase the total cost of outsourcing is $2150 whereas the total cost to manufacture is $2170. so there is a saving of $20.
d) The maximum price the company could offer is $1870 which is calculated as (2170 - 300)
e) Two qualitative factors that the company should address would include the quality of the valve produced by the other company. If there is a compromise in the quality, it wil lead to losses for the company.
The second factor would be timing of providing the valves. The outsourcing firm should be able to provide the valves on time so that there is no loss sale.
Cost to outsource $1,850 Equipment depreciation $300 Total cost $2,150Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.