Reference no: EM132517248

Too Tall Cranes manufactures large cranes for use in construction projects. The company has historically always produced the whole crane, including steering columns. However, this year a company contacted them and asked if they would be interested in purchasing steering columns at a cost of $500 per column.

The steering columns have the following internal cost information:

Per Unit                                                              500 Units

Direct Materials                                                      $215                   $107,500

Direct Labour                                                         $200                  $100,000

Variable manufacturing overhead                                $85                    $42,500

Rent                                                                      $25                   $12,500

Manager Salary                                                        $45                  $22,500

Amortization of specialized-

equipment                                                                 $15                $7,500

Total Cost                                                                   $858              $292,500

Required:

Question 1: Show a calculation for both per unit & at 500 units to determine if Too Tall Cranes should accept the outside suppliers offer to manufacture the crane, including a discussion on avoidable or unavoidable costs for all listed costs above

Question 2: Suppose that if they purchase the steering column, Too Tall Cranes can now manufacture a new line of smaller mountable cranes. The segment margin would be $15,000 per year. Should they accept the offer to outsource the steering columns. Show all work.