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Problem 4.52 Larkspur Company manufactures medical scooters for people who need assistance in mobility. Facing rising utilities expenses and labour costs, Larkspur is contemplating outsourcing the production of one of its product lines, FreeMe. Currently, Larkspur makes 3,400 units of FreeMe annually. The cost structure for one unit of FreeMe is as follows: Direct Materials $143 Direct Labour 193 Variable Overhead 53 Fixed Overhead 119 Larkspur's cost accountant analyzed the fixed overhead and found that several costs are allocated to FreeMe at a rate of 40%. Larkspur's total corporate fixed overhead costs consist of Testing & Inspection, $136,000, Design & Engineering, $ 204,000, Rent - Factory, $119,000, and Machine related costs, $467,500. In addition, FreeMe pays $34,000 per year to rent a warehouse to store the finished product before shipping to customers. A Chinese manufacturer offers to produce FreeMe at $455 per unit. A further study of the fixed overhead costs finds that once FreeMe is outsourced, FreeMe will no longer be charged the costs for Testing & Inspection. Larkspur will be able to reduce the Design & Engineering cost by half, and thus the cost saving will be passed on to FreeMe. The space and machine used by making FreeMe will be freed up to produce other product. However, there is no demand to increase the production of other product line. Your answer is correct. Calculate the total cost per unit for FreeMe. $ 508 Total Manufacturing Costs LINK TO TEXT LINK TO TEXT Your answer is partially correct. Try again. Should Larkspur outsource FreeMe? Net Cost of outsourcing Larkspur should not outsource FreeMe. LINK TO TEXT LINK TO TEXT Your answer is partially correct. Try again. Suppose there is a demand for other product lines, and the Rent - Factory and Machine related costs allocated to FreeMe now can be allocated to another product line. Should Larkspur outsource FreeMe? Net Benefit of outsourcing Larkspur Tshould outsource FreeMe. LINK TO TEXT LINK TO TEXT

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