“That old equipment for producing carburetors is worn out,” saidBill Seebach, president of Hondrich Company. “We need to make adecision quickly.” The company is trying to decide whether itshould rent new equipment and continue to make its carburetorsinternally or whether it should discontinue production of itscarburetors and purchase them from an outside supplier. Thealternatives follow:

     Alternative 1: Rent newequipment for producing the carburetors for $115,000 peryear.
     Alternative 2: Purchasecarburetors from an outside supplier for $16.95 each.

     Hondrich Company’s costs per unit ofproducing the carburetors internally (with the old equipment) aregiven below. These costs are based on a current activity level of25,000 units per year:

Direct materials	$	5.10
Direct labour		8.00
Variable overhead		2.80
Fixed overhead ($2.30 supervision, $1.80depreciation,     and $4.00 general company overhead)		8.10
Total cost per unit	$	24.00

     The new equipment would be moreefficient and, according to the manufacturer, would reduce directlabour costs and variable overhead costs by 25%. Supervision cost($57,500 per year) and direct materials cost per unit would not beaffected by the new equipment. The new equipment’s capacity wouldbe 50,000 carburetors per year.

     The total general company overheadwould be unaffected by this decision.

Required:
1. Seebach is unsure what the company should doand would like an analysis showing the unit costs and total costsfor each of the two alternatives given above. Assume that 25,000carburetors are needed each year.

a. What will be the total relevant costof 25,000 subassemblies if they are manufactured internally ascompared to being purchased?

b. What would be the per unit cost ofthe each subassembly manufactured internally? (Do not roundintermediate calculations. Round your answer to 2 decimalplaces.)

2. Seebach is unsure what the company should doand would like an analysis showing the unit costs and total costsfor each of the two alternatives given above.

a-1. What will be the total relevant costof 46,000 subassemblies if they are manufactured internally?

a-2. What would be the per unit costof subassembly? (Do not round intermediate calculations.Round your answer to 2 decimal places.)

b-1. What will be the total relevantcost of 50,000 subassemblies if they are manufacturedinternally?

b-2. What would be the per unit costof subassembly? (Do not round intermediate calculations.Round your answer to 2 decimal places.