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E11-20 Page 415 Current Costs Expected Costs Total Mfg Unit Mfg Unit in 2008 in 2009 Cost 2009 Cost VARIABLE MANUFACTURING COSTS DIRECT MATERIAL COST PER CMCB $180 $170 $1,700,000 $170 DIRECT MANUFACTURING LABOR COST PER CMCB $50 $45 $450,000 $45 VARIABLE MANUFACTURING COST PER BATCH FOR SETUPS, MATERIAL HANDLING, AND QUALITY CONTROL $1,600 $1,500 $120,000 $12 FIXED MANUFACTURING COST FIXED MANUFACTURING OVERHEAD COSTS THAT CAN BE AVOIDED IF CMCBS ARE NOT MADE $320,000 $320,000 $320,000 $32 FIXED MANUFACTURING OVERHEAD COSTS OF PLANT DEPRECIATION, INSURANCE, AND ADMINISTRATION THAT CANNOT BE AVOIDED EVEN IF CMCBS ARE NOT MADE $800,000 $800,000 $800,000 $80 $3,390,000 $339 Question #1 CMCBS MANUFACTURED 8,000 10,000 BATCHES 40 80 CMCBS PER BATCH 200 125 MINTON CORP PROPOSED CMCB COST PER UNIT $300 A B C D E F 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
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Current Costs Expected Costs Total Incrememtal Costs Mfg Unit Mfg Unit in 2008 in 2009 Make Buy Cost Cost VARIABLE MANUFACTURING COSTS $3,000,000 $300 DIRECT MATERIAL COST PER CMCB $180 $170 $1,700,000 $170 DIRECT MANUFACTURING LABOR COST PER CMCB $50 $45 $450,000 $45 VARIABLE MANUFACTURING COST PER BATCH FOR SETUPS, MATERIAL HANDLING, AND QUALITY CONTROL $1,600 $1,500 $120,000 $12 FIXED MANUFACTURING COST FIXED MANUFACTURING OVERHEAD COSTS THAT CAN BE AVOIDED IF CMCBS ARE NOT MADE $320,000 $320,000 $320,000 $32 FIXED MANUFACTURING OVERHEAD COSTS OF PLANT DEPRECIATION, INSURANCE, AND ADMINISTRATION THAT CANNOT BE AVOIDED EVEN IF CMCBS ARE NOT MADE $800,000 $800,000 $2,590,000 $3,000,000 $259 $300 $410,000 $41 In Favor of Making Question # 2 Make Buy CMCBS MANUFACTURED 8,000 10,000 BATCHES 40 80 CMCBS PER BATCH 200 125 MINTON CORP PROPOSED CMCB COST PER UNIT $300 `` Note that the opportunity cost of using capacity to make CMCBs is zero since Svenson would keep this capacity idle if it purchases CMCBs from Minton. Svenson should continue to manufacture the CMCBs internally
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