For most construction projects, Bradley Heating and Cooling buys sheet metal and forms the metal into heating/cooling ducts as needed. The company estimates the costs of making and installing duct work for the Kerry Park shopping mall to be as follows:
Materials................$35,000
Labor to form duct work...........$3,000
Labor to install duct work..........$9,000
Miscellaneous variable costs.........$1,500
Fixed costs allocated based on labor hours...$3,000
Total cost................$51,500
The fixed cost relate to the company's building, equipment, and office staff The company plans to bill the Kerry Park developer $68,000 for services. Bradley is currently behind schedule on other projects and is paying a late penalty of $1,200 per day. Waft Bradley, the owner of Bradley Heating and Cooling, is considering ordering prefabricated duct work for the Kerry Park job. The prefabricated duct work will cost $40,000 (including the cost of sheet metal). If Walt buys the prefabricated duct work, he'll be able to reassign workers to another project and avoid five days of late fees.
Required:
Should Bradley make the duct work or buy it prefabricated?