Reference no: EM132590692

Lillian Corporation currently makes a key input into its main product. Bernard, a manager within Lillian, is arguing that the organization should outsource production of this input, and buy it from a third-party supplier.

Currently, the per-unit manufacturing costs are $20 in materials, $25 in labor, $20 in variable manufacturing overhead, and $10 in fixed costs per unit. The fixed costs are allocated from the total of fixed costs generated by the entire factory.

Bernard's third-party supplier would charge Lillian $70 per unit, and could sell to Lillian the entire 1,000 units Lillian needs each year.

Also, if Bernard's plan is implemented, it can use the capacity currently being used to produce an input to generate additional profit of $11,000.

Question 1: Assuming Lillian is adopting a financial perspective, which of the following is true?

Question 2: What will be diffrence in profit?

Boris Company has multiple business units. Unit B has the following information: sales revenue is $300,000; variable expenses are $200,000; fixed expenses are $150,000. Fixed expenses - which are mostly represented by shared capacity costs (e.g., rent, depreciation, etc.) - are allocated evenly to the business units.

Question 3: What is the effect on Boris Company as a whole if Unit B is eliminated?

onathan Corporation makes an unassembled chair that sells for $25. Product costs are $8 per chair. Lois, the product line manager, suggests that Jonathan Corp. should instead sell an assembled chair, as revenues will be higher.

The market price for the assembled chair would be $30. The cost of additional assembly is $4.

Question 4: Which of the following statements are true? (Check all that apply.