<u>Solution and Explanation:</u>
<u>Part a: </u>
Revenue 5000 multiply 6.6 33000
Unit Level Variable Cost:
Material Cost 5000 multiply 2.7 -13500
Labor Cost 5000 multiply 1.2 -6000
Manufacturing Cost 5000 multiply 1.2 -6000
Shipping and Handling 5000 multiply 0.3 -1500
Sales Commission 0
Contribution Margin 6000
Should be accepted as it will increase profitability by $6000
Part b1&b2: Cost to Make Cost to Buy
Material Cost 40000*2.7 108000
Labor Cost 40000*1.2 48000
Manufacturing Cost 40000*1.2 48000
Prod Supervisor Salary 72000
Purchase Cost 40000*6.72 0 268800
Total Cost 276000 268800
Should purchase from outside as cost is lower than making it
Part b3:
Cost to Make Cost to Buy
Material Cost 60000 multiply 2.7 162000
Labor Cost 60000 multiply1.2 72000
Manufacturing Cost 60000*1.2 72000
Prod Supervisor Salary 72000 72000
Purchase Cost 60000*6.72 0 403200
Total Cost 378000 475200
Should make in house as cost is lower
Part c: It should not be eliminated.
Elimination will decrease profitability by $72000 which is being allocated company wide facility exp. Before Allocation, actual profit is (168000-24000-72000)=$72000
Loss is because of allocation of facility expenese, which will be allocated on other segment.
