(Solution Download) The president of Shield Materials Inc Jason Sheppard asked th


The president of Shield Materials Inc., Jason Sheppard, asked the controller, Jill Mayfield, to provide an analysis of a make vs. buy decision for material TS-101. The material is presently processed in Shield?s Roanoke facility. TS-101 is used in processing of final products in the facility. Mayfield determined the following unit production costs for the material as of March 15, 2006:
Direct materials ........... $ 7.20
Direct labor ............ 2.50
Variable factory overhead ....... 1.20
Fixed factory overhead ........ 2.00
Total production costs per unit ..... $12.90
In addition, material TS-101 requires special hazardous material handling. This special handling adds an additional cost of $1.50 for each unit produced. Material TS-101 can be purchased from an overseas supplier. The supplier does not presently do business with Shield Materials. This supplier promises monthly delivery of the material at a price of $9.60 per unit, plus transportation cost of $0.40 per unit. In addition, Shield would need to incur additional administrative costs to satisfy import regulations for hazardous material. These additional administrative costs are estimated to be $0.80 per purchased unit. Each purchased unit would also require special hazardous material handling of $1.50 per unit.
a. Prepare a differential analysis report to support Mayfield?s recommendation on whether to continue making material TS-101 or whether to purchase the material from the overseas supplier.
b. What additional considerations should Mayfield address in the recommendation?

 







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