(Solution Download) The president of Monarch Materials Inc Todd Bentley asked the


The president of Monarch Materials Inc., Todd Bentley, asked the controller, Megan Mayfield, to provide an analysis of a make vs. buy decision for material TS-101. The material is presently processed in Monarch?s Roanoke facility. TS-101 is used in processing of final products in the facility. Megan determined the following unit production costs for the material as of March 15, 2008:
Direct materials ....... $ 7.50
Direct labor ........... 2.70
Variable factory overhead ....... 1.20
Fixed factory overhead ..... 2.00
Total production costs per unit . $13.40

In addition, material TS-101 requires special hazardous material handling. This special handling adds an additional cost of $1.60 for each unit produced.
Material TS-101 can be purchased from an overseas supplier. The supplier does not presently do business with Monarch Materials. This supplier promises monthly delivery of the material at a price of $10.10 per unit, plus transportation cost of $0.40 per unit. In addition, Monarch 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 $1.60 per unit.
a. Prepare a differential analysis report to support Megan?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 Megan address in the recommendation?

 







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