Q1. WLS Company currently makes a key component for their tractors in house. The costs are as follows:
Per Unit
Direct Materials $ 4.00
Direct Labor 6.00
Allocated Overhead 10.00
Total Cost $20.00
If the component is purchased from an outside vendor the company will reduce their overhead costs by 80%. What is the maximum purchase price the company should consider to move to an outside vendor without respect to any other issue?
(Present calculations for partial credit). Label your answer.
Q2. What issues should be considered when making decisions about outsourcing and eliminating the production of a key sub assembly for products manufactured by a company? Your answer should be presented as a bulleted list.
Q3. What issues should be considered when deciding whether to eliminate a product line? Your answer should discuss the issues of profitability and include the concept of the contribution format income statement as well as the effect on sales for the company.