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PBZ-2 Analyzing Make-or-Buy Decision QLO 7-2, 7-4 Greenview Corp. (see PB7-1) is considering the possibility of outsourcing the production of the upholstered chair pads included with some of its wooden chairs. The company has received a bid from a company in China to produce 1,000 units per year for $9 each. Greenview has the following information about its own production of the chair pads: Direct materials $ 4 Direct labor 1 Variable manufacturing overhead 2 Fixed manufacturing overhead 3 Total cost per unit $10 Greenview has determined that all variable costs could be eliminated by dropping production of the chair pads, and that 30 percent of the fixed manufacturing overhead is avoidable. At this time, Greenview has no specific use in mind for the space currently dedicated to producing the chair pads. Required: 1. Compute the difference in cost between making and buying the chair pads. 2. Should Grec e them? Required: 1. Compute the difference in cost between making and buying the chair pads. 2. Should Greenview buy the chair pads or continue to make them? 3. Suppose that a new product line that Greenview wants to develop could utilize the space currently used for the chair pads. How much profit must the new product line generate for Greenview to be indifferent between making or buying the chair pads? 4. Assume Greenview has a sustainability goal to increase the percentage of spending from local suppliers. If Greenview's managers are responsible for improving this metric, how might it impact their sourcing decisions? 5. What other strategic or sustainability-related goals should Greenview consider before making a final decision? X Chapter 7 Lab PB 7-2 & 7 pps 342 & 345 Q Search Sheet Home Insert Page Layout Formulas Data Review View + Share = Insert Calibri (Body) 12 A- A 5 Wrap Text General NA 4 49 x Delete Paste B I U Merge & Center $ % % ) 0 .00 .00 Conditional Format Formatting as Table Cell Styles I Format Sort & Filter K6 fx A B D H 1 J K L M N o P Q E F Enter formulas or descriptions in these fields Make Buy Direct Material Direct labor Variable Overhead Fixed Overhead Purchase Price 1 Total Cost per unit 1 Chapter 7 Lab - PB 7-2, page 342 2 3 4 Given data: 5 5 6 Number of units 1000 7 Offer price $9 8 9 10 10 Production Costs 14 11 Direct Material $4 12 Direct labor $1 13 Variable Overhead $2 14 Fixed Overhead $3 15 Total Cost per unit $10 16 16 17 17 Avoidable overhead 30% 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 2 3 $0.00 Problem 1 Problem 2 + a Ready + 100%

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