Question

8.12 The Holtz Company manufactures a variety of electronic printed circuit boards (PCBS) that go into cellular phones. The company has just received an offer from an outside supplier to pro- vide the electrical soldering for Holtz's Motorola

Answer 1

The He Company specializes in manufacturing circuit boards. An external producer has offered to produce the boards for the company at a price of $4.8 percay. unit. If the company opts for the outsourcing option, direct la boy and overhead variable costs decrease by 15% of the in-house production cost. The material cost also gets slashed by 20%. @ The following spread sheet compares the different caste of in-house and out sourcing options.

Inhouse Production charges Expenses soldering operation 2 Direct materiale 13 Direct Labor outsourcing option. 4.8 -B3-C3 7.5 20-4 *7.5 * 15%*5 1 =B4-C4 4 Manufacturing - overhead. 3 Variable .8 = 15-7- *38 86-06 In art fixed 0.2 -B7-C7 = SOM (02:07) unit cost - SUMCB3:37)

In house production Expenses Soldeying operation Direct Materials charges | Outsourcing option $4.80 $1.50 $6.00 $7.50 $5.00 $0.75 $4-25 Direct Laboy Manufacturing overhead Variable $0-57 $3-23 $ 3.80 $0.00 $ 0-20 fixed $0-20 $18.48 Unit cost $16.5 Ho company should not accept the external produces offer Since outsourcing circuit boards will cost $1.98[:$18.48-$16.567 more in comparision to in-house production. . . 6. The highest price He Company would agree to pay to the external producer can be determined by substracting the additional $1.98 spent in outsourcing from $4.80 . This will give the break-even price. = point $4.8 - $1.98 Break-even = $2.82 Hence, the H. Company will be maximum of $2.82 external producer. giving to pay a unit to the per