Question

Winone Johnson is the president of Johnson Mfg., which manufactures coats. She is trying to decide...

  1. Winone Johnson is the president of Johnson Mfg., which manufactures coats. She is trying to decide whether to make 3,000 Type III coats or purchase them from a sub-contractor to fill a rush special order she just received. There are no marketing costs on the special order. Acceptance of the special order would not necessitate any premium pay for overtime work or additional fixed costs. John Mfg., has supplied the following data:

Sale Price

$42

Direct Materials

15

Direct Labor

9

Fixed Mfg. Overhead

3

Variable Mfg. Overhead

6

Variable Marketing Costs

3

Fixed Marketing Costs

1

Fixed Administrative Overhead

2

Required:

-At what purchase price per unit would Ms. Johnson be indifferent as to whether her firm manufactured the coats, or they were purchased from a subcontractor?

-What qualitative factors might influence MS. Johnson’s decision regarding manufacturing the coats or purchasing them?

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