1. Each year, Sunshine Motos surveys 7,500 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering outsourcing the survey to Global Associates, who have offered to conduct the survey and summarize results for $30,000.
Craig Sunshine, the president of Sunshine Motors, believes that Global will do a higher-quality job than his company has been doing, but is unwilling to spend more than $10,000 above the current costs.
The head of bookkeeping for Sunshine has prepared the following summary of costs related to the survey in the prior year.
Mailing $16,800
Printing (done by Lester Print Shop) $4,500
Salary of Pat Fisher, part-time employee who stuffed envelopes and summarized data when surveys were returned
(100 hours X $15) $1,500
Share of depreciation of computer and software used to track survey responses and summarized results. $1,100
Share of electricity/phone/etc. based on square feet of space occupied by Pat Fisher vs. entire company. $500
REQUIRED: What is the incremental cost of going outside versus conducting the survey as in the past?
2. Howell Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below:
|
|
Cost per Unit |
| Variable costs |
|
|
| Direct material |
|
$940 |
| Direct labor |
|
600 |
| Variable overhead |
|
300 |
|
|
|
| Fixed costs |
|
|
| Depreciation of equipment |
|
500 |
| Depreciation of building |
|
300 |
| Supervisory salaries |
|
300 |
The company has an offer from Duvall Valves to produce the part for $2,000 per unit and supply 1,000 valves (the number needed in the coming year).
If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company, and it has no market value.
However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year.
What is the incremental savings of buying the valves? (The answer should be stated in a per-unit format and is a positive number)