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The Southwest Division of the Paibec Corporation manufactures subassemblies used in Paibec's final products. Lynn Hardt of Northwest's profit-planning department has been assigned the task of determining whether Southwest 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 2022 at a per-unit price of \$21.25. Marley has assured Paibec that the units will be delivered according to Paibec's production specifications and needs. The contract price of \$21.25 is applicable only in 2022 but Marley is interested in entering into a long-term arrangement beyond 2022. Lynn has submitted the following information regarding Southwest's cost to manufacture 25,000 units of MTR-2000 in 2021 : Lynn has collected the following information related to manufacturing MTR-2000: Equipment leasing costs represent special equipment used to manufacture MTR-2000. Southwest can terminate this lease by paying the equivalent of one month's lease payment for each of the two 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 2022 . The fixed manufacturing overhead costs are not expected to change whether Southwest manufactures or purchases MTR-2000. Southwest 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 percent in 2022. Southwest's direct labor contract calls for a 5 percent wage increase in 2022. The facilities used to manufacture MTR-2000 are rented under a month-to-month rental agreement. Southwest would have no need for this space if it does not manufacture MTR-2000. Southwest can withdraw from the rental agreement without any penalty. John Porter, Southwest divisional manager, stopped by Lynn's office to voice his opinion regarding the outsourcing of MTR2000. He commented, "I am really concerned about outsourcing MTR-2000. I have a son-in-law and a nephew, not to mention a member of our bowling team, who work on MTR-2000. They could lose their jobs if we buy that component from Marley. I really would appreciate anything you can do to make sure the cost analysis shows that we should continue making MTR-2000. Corporate is not aware of materials cost increases and maybe you can leave out some of those costs. I just think we should continue making MTR-2000." 1. Prepare a relevant cost analysis that shows whether the Southwest Division should make MTR-2000 or purchase it from Marley Company for 2022. Specifically (a) what is the relevant cost per unit to make and the relevant cost per unit to buy externally? (Round both answers to two (2) decimal places.) (b) What is the total difference in relevant costs between the two alternatives, assuming a volume of 30,000 units? (Round answer to nearest whole dollar.) (c) What comparable savings would you expect in later years? 2. Identify and briefly discuss the The Southwest Division of the Paibec Corporation manufactures subassemblies used in Paibec's final products. Lynn Hardt of Northwest's profit-planning department has been assigned the task of determining whether Southwest 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 2022 at a per-unit price of \$21.25. Marley has assured Paibec that the units will be delivered according to Paibec's production specifications and needs. The contract price of \$21.25 is applicable only in 2022 but Marley is interested in entering into a long-term arrangement beyond 2022. Lynn has submitted the following information regarding Southwest's cost to manufacture 25,000 units of MTR-2000 in 2021 : Lynn has collected the following information related to manufacturing MTR-2000: Equipment leasing costs represent special equipment used to manufacture MTR-2000. Southwest can terminate this lease by paying the equivalent of one month's lease payment for each of the two 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 2022 . The fixed manufacturing overhead costs are not expected to change whether Southwest manufactures or purchases MTR-2000. Southwest 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 percent in 2022. Southwest's direct labor contract calls for a 5 percent wage increase in 2022. The facilities used to manufacture MTR-2000 are rented under a month-to-month rental agreement. Southwest would have no need for this space if it does not manufacture MTR-2000. Southwest can withdraw from the rental agreement without any penalty. John Porter, Southwest divisional manager, stopped by Lynn's office to voice his opinion regarding the outsourcing of MTR2000. He commented, "I am really concerned about outsourcing MTR-2000. I have a son-in-law and a nephew, not to mention a member of our bowling team, who work on MTR-2000. They could lose their jobs if we buy that component from Marley. I really would appreciate anything you can do to make sure the cost analysis shows that we should continue making MTR-2000. Corporate is not aware of materials cost increases and maybe you can leave out some of those costs. I just think we should continue making MTR-2000." 1. Prepare a relevant cost analysis that shows whether the Southwest Division should make MTR-2000 or purchase it from Marley Company for 2022. Specifically (a) what is the relevant cost per unit to make and the relevant cost per unit to buy externally? (Round both answers to two (2) decimal places.) (b) What is the total difference in relevant costs between the two alternatives, assuming a volume of 30,000 units? (Round answer to nearest whole dollar.) (c) What comparable savings would you expect in later years? 2. Identify and briefly discuss the

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