Bancroft currently manufactures a subcomponent that is used in its main product.

Question

Bancroft 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 $122. Bancroft currently produces 20,500 subcomponents at the following manufacturing costs Per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead s 45 31 40 20 S 136 Unit cost a. If Bancroft has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier? b. If Bancroft has no altenative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier? per units

Explanation / Answer

a Impact on profit=20500*(122-45-31-40)= $123000 decrease b Maximum price=45+31+40= $116 c Impact on profit=20500*(122-45-31-40)-325000= $202000 increase

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