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Pearl Systems produces and sells speakers and CD players. The following information has been collected...

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Accounting

Pearl Systems produces and sells speakers and CD players. The following information has been collected about the costs related to the systems:

Selling price per unit $ 72
Production costs per unit
Direct materials $ 23
Direct labour 18
Variable overhead 2
Total fixed overhead $ 303,920

Pearl normally produces 23,200 of these systems per year.

The managers have recently received an offer from a Mexican company to produce these systems for $ 51 each. The managers estimate that $ 245,920 of Pearls fixed costs could be eliminated if they accept the offer.

Perform a quantitative analysis for the decision, and present your results in a schedule. (Round entries for this part to 2 decimal places, e.g. 12.55.)

Make Buy
Purchase price $ $
Variable costs:
Direct materials
Direct labour
Variable overhead
Avoidable fixed cost
Total $ $

Pearl should buy/ make.

Under the general decision rule for this type of decision, what production level is required for Pearls managers to be indifferent?

Production level: systems

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