he Holtz Company manufactures a varietyof electronic printed circuit boards (PCBs) thatgo into cellular phones. The company has justreceived an offer from an outside supplier to provide the electrical soldering for Holtz’s Motorolaproduct line (Z-7 PCB, slimline). The quoted priceis $4.80 per unit. Holtz is interested in this offer,since its own soldering operation of the PCB is atits peak capacity.• Outsourcing option: The company estimatesthat if the supplier’s offer were accepted, thedirect labor and variable overhead costs of the Z-7slimline would be reduced by 15%, and the directmaterial cost would be reduced by 20%.• In-house production option: Under the presentoperations, Holtz manufactures all of its own PCBsfrom start to finish. The Z-7 slimlines are soldthrough Motorola at $20 per unit. Fixed overheadcharges to the Z-7 slimline total $20,000 each year.The further breakdown of producing one unit isDirect materials $7.50Direct labor $5.00Manufacturing overhead $4.00Total cost $16.50The manufacturing overhead of $4.00 per unitincludes both variable ($3.80) and fixed ($0.20)manufacturing overhead based on a production of100,000 units each year.(a) Should Holtz Company accept the outside supplier’s offer?(b) What is the maximum unit price that HoltzCompany should be willing to pay the outsidesupplier?
he 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 provide the electrical soldering for Holtz’s Motorola
product line (Z-7 PCB, slimline). The quoted price
is $4.80 per unit. Holtz 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
slimline would be reduced by 15%, and the direct
material cost would be reduced by 20%.
• In-house production option: Under the present
operations, Holtz 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
Direct materials $7.50
Direct labor $5.00
Manufacturing overhead $4.00
Total cost $16.50
The manufacturing overhead of $4.00 per unit
includes both variable ($3.80) and fixed ($0.20)
manufacturing overhead based on a production of
100,000 units each year.
(a) Should Holtz Company accept the outside supplier’s offer?
(b) What is the maximum unit price that Holtz
Company should be willing to pay the outside
supplier?
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