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1. Based on the info how would you set up a relevant cost analysis that shows whether the Midwest Division should make MTR-2000 or outsource it from Marley company?
2. What is the relevant cost per unit to make and the relevant cost per unit to buy externally?
3. What is the total difference in relevant costs between the two alternatives, assuming a volume of 30,000 units?
   

CoursHeroTranscribedText: 11-37 Make vs. Buy; Strategy; Ethics The Midwest Division of the Paibec Corporation manufactures subassemblies used in Paibec's final products. Lynn Hardt of Midwest's profit planning department has been assigned the task of determining whether Midwest should continue to manufacture a subassembly component, MTR-2000, or purchase it from Marley Company, an outside supplier. Marley has submitted a bid to manufacture and supply the 30,000 units of MTR-2000 that Paibec will need for 2019 at a per-unit price of $20.00. Marley has assured Paibec that the units will be delivered according to Paibec's production specifications and needs. The contract price of $20.00 is applicable only in 2019, but Marley is interested in entering into a long-term arrangement beyond 2019. Lynn has submitted the following information regarding Midwest's cost to manufacture 25,000 units of MTR-2000 in 2018: Direct materials $168,750 Direct labor 100,000 Factory space rental 150,000 Equipment leasing costs 45,000 Other manufacturing costs 250,000 Total manufacturing costs $713,750 Lynn has collected the following information related to manufacturing MTR-2000: . Equipment leasing costs represent special equipment used to manufacture MTR-2000. Midwest can terminate this lease by paying the equivalent of 1 month's lease payment for each of the 2 years left on its lease agreement. . Forty percent of the other manufacturing overhead is considered variable. Variable overhead changes with the number of units produced, and this rate per unit is not expected to change in 2019. The fixed manufacturing overhead costs are not expected to change (in total) whether Midwest manufactures or purchases MTR-2000. Midwest can use equipment other than the leased equipment in its other manufacturing operations. . Direct materials cost used in the production of MTR-2000 is expected to increase 7% in 2019. . Midwest's direct labor contract calls for a 4% wage increase in 2019. . The facilities used to manufacture MTR-2000 are rented under a month-to-month rental agreement. Midwest would have no need for this space if it does not manufacture MTR-2000. Thus, Midwest can withdraw from the rental agreement without any penalty

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