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Bancroft currently manufactures a subcomponent that is used in its main product. A supplier has...

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Accounting

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

Required:

  1. If Bancroft has no alternative uses for the manufacturing capacity, what would be the profit impact of buying the subcomponents from the supplier?
  2. 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?
  3. 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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