Bancroft currently manufactures a subcomponent that is used in its main product. A supplier has offered to supply all the subcomponents needed at a price of $240. Bancroft currently produces 20,000 subcomponents at the following manufacturing costs: Cost per UnitDirect materials$ 90Direct labor60Variable manufacturing overhead70Fixed manufacturing overhead50Total unit cost$ 270Required:If Bancroft has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier?If Bancroft has no alternative uses for the manufacturing capacity, what would be the maximum price per unit Bancroft should be willing to pay the supplier?Now assume Bancroft would avoid $640,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?

Short-term profit alone does not provide a comprehensive view of a company's overall financial…

Answered: ncroft currently manufactures a…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

	Cost per Unit
Direct materials	$ 90
Direct labor	60
Variable manufacturing overhead	70
Fixed manufacturing overhead	50
Total unit cost	$ 270

If Bancroft has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier?
If Bancroft has no alternative uses for the manufacturing capacity, what would be the maximum price per unit Bancroft should be willing to pay the supplier?
Now assume Bancroft would avoid $640,000 in equipment leases and salaries if the subcomponent were purchased from the supplier. Now what would be the profit impact of buying from the supplier?

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