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Pearson 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 provide the electrical soldering for Pearson's Motorola product line (Z-7 PCB, slimline). The quoted price is $4.80 per unit. Pearson is interested in this offer, since its own soldering operation of the PCB is at its peak capacity. Outsourcing option. The company estimates that if the supplier's offer were accepted, the direct labor and variable overhead costs of the Z-7 slimline would be reduced by 15% and the direct material cost would be reduced by 20%. In-house production option. Under the present operations, Pearson manufactures all of its own PCBS from start to finish. The Z-7 slimlines are sold through Motorola at $20 per unit. Fixed overhead charges to the Z-7 slimline total $20,000 each year. The further breakdown of producing one unit is as follows: Direct materials $ 7.50 Direct labor 5.00 Manufacturing overhead 4.00 Total cost $16.00 The manufacturing overhead of $4.00 per unit includes both variable and fixed manufacturing overhead, based on a production of 100,000 units each year. Find the differential cost of two options. Should Pearson Company accept the outside supplier’s offer?

Pearson 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 provide the electrical soldering for Pearson's Motorola product line (Z-7 PCB, slimline). The quoted price is $4.80 per unit. Pearson is interested in this offer, since its own soldering operation of the PCB is at its peak capacity. Outsourcing option. The company estimates that if the supplier's offer were accepted, the direct labor and variable overhead costs of the Z-7 slimline would be reduced by 15% and the direct material cost would be reduced by 20%. In-house production option. Under the present operations, Pearson manufactures all of its own PCBS from start to finish. The Z-7 slimlines are sold through Motorola at $20 per unit. Fixed overhead charges to the Z-7 slimline total $20,000 each year. The further breakdown of producing one unit is as follows: Direct materials $ 7.50 Direct labor 5.00 Manufacturing overhead 4.00 Total cost $16.00 The manufacturing overhead of $4.00 per unit includes both variable and fixed manufacturing overhead, based on a production of 100,000 units each year. Find the differential cost of two options. Should Pearson Company accept the outside supplier’s offer?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter8: Cost Analysis
Section: Chapter Questions
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Pearson 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 provide the electrical soldering for Pearson's Motorola product line (Z-7 PCB, slimline). The quoted price is $4.80 per unit. Pearson is interested in this offer, since its own soldering operation of the PCB is at its peak capacity. Outsourcing option. The company estimates that if the supplier's offer were accepted, the direct labor and variable overhead costs of the Z-7 slimline would be reduced by 15% and the direct material cost would be reduced by 20%. In-house production option. Under the present operations, Pearson manufactures all of its own PCBS from start to finish. The Z-7 slimlines are sold through Motorola at $20 per unit. Fixed overhead charges to the Z-7 slimline total $20,000 each year. The further breakdown of producing one unit is as follows: Direct materials $ 7.50 Direct labor 5.00 Manufacturing overhead 4.00 Total cost $16.00 The manufacturing overhead of $4.00 per unit includes both variable and fixed manufacturing overhead, based on a production of 100,000 units each year. Find the differential cost of two options. Should Pearson Company accept the outside supplier's offer?
Transcribed Image Text:Pearson 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 provide the electrical soldering for Pearson's Motorola product line (Z-7 PCB, slimline). The quoted price is $4.80 per unit. Pearson is interested in this offer, since its own soldering operation of the PCB is at its peak capacity. Outsourcing option. The company estimates that if the supplier's offer were accepted, the direct labor and variable overhead costs of the Z-7 slimline would be reduced by 15% and the direct material cost would be reduced by 20%. In-house production option. Under the present operations, Pearson manufactures all of its own PCBS from start to finish. The Z-7 slimlines are sold through Motorola at $20 per unit. Fixed overhead charges to the Z-7 slimline total $20,000 each year. The further breakdown of producing one unit is as follows: Direct materials $ 7.50 Direct labor 5.00 Manufacturing overhead 4.00 Total cost $16.00 The manufacturing overhead of $4.00 per unit includes both variable and fixed manufacturing overhead, based on a production of 100,000 units each year. Find the differential cost of two options. Should Pearson Company accept the outside supplier's offer?
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