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 $120. Bancroft currently produces 20,700 subcomponents at the following manufacturing costs:

Per unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $ 40 32 35 Unit cost $129 a. If Bancroft has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier? ess Profit $269,100 b. If Bancroft has no alternative uses for the manufacturing capacity, what would be the maximum price per unit they would be willing to pay the supplier? Maximum Price per units

Explanation / Answer

b.If Bancroft has no alternative uses for the manufacturing capacity, the maximum price per unit they will be willing to pay the supplier.

c.if bancroft would avoid $320,000 in equipment leases and salaries:

only avoidable cost is relevant

SInce purchase price is less than the relevent costs of making, we have an increase in profit of $50,900.

Direct materials $40 Direct labour $32 varialble manufacturing overhead $35 Price they will be willing to pay the supplier $107

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