McMullen Co. manufactures automatic door openers

McMullen Co. manufactures automatic door openers. The company uses 15,000 electronic hinges per year as a component in the assembly of the openers. You have been engaged by McMullen to assist with an evaluation of whether the company should continue producing the hinges or purchase them from an outside vendor.

The Accounting Department provided the following detail regarding the annual cost to produce electronic hinges:
Direct Materials $54,000
Direct Labor 60,000
Variable Manufacturing Overhead 36,000
Fixed Manufacturing Overhead 90,000
Total Costs $240,000

The Procurement Department provided the following supplier pricing:
Supplier A price per hinge $11.00
Supplier B price per hinge $10.75
Supplier C price per hinge $10.50
The supplier pricing was obtained in response to a formal request for proposal (RFP). Procurement has determined these suppliers meet McMullen's technical specifications and quality requirements.

If McMullen stops producing the part internally, 10% of the manufacturing overhead would be eliminated.

Required: Prepare a make or buy analysis showing the annual advantage or disadvantage of accepting an outside supplier's offer.


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(ACC 349 Week 4) Technology Plus manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners

ACC 349 Week 4

BYP 6-2 (BYP6-2) Technology Plus manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners. Some of the products are sold as sets, and others are sold individually. Products are studied as to their sales potential, and then cost estimates are made. The Engineering Department develops production plans, and then production begins. The company has generally had very successful product introductions. Only two products introduced by the company have been discontinued.

AND SO ON

Instructions
(a) What is the difference in profit under each of the alternatives if the clocks are to be sold for $14.50 each to Kmart?
(b) What are the most important nonfinancial factors that Technology Plus should consider when making this decision?
(c) What do you think Technology Plus should do in regard to the Kmart order? What should it do in regard to continuing to manufacture the multi-alarm alarm clocks?

Click here for the solution: ACC 349 Week 4 Technology Plus manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners