Reference no: EM132472800

Hanson, Inc. makes 1,000 units per year of a part called a prositron for use in one of its products. Data concerning the unit production costs of prositron follow:

Direct materials                                  $342

Direct labor                                          80

Variable manufacturing overhead              48

fixed manufacturing overhead                 630

Total manufacturing cost per unit           $990

Point 1: An outside supplier has offered to sell Hanson Inc. all of the prositrons it requires. If Hanson, Inc. decided to discontinue making the prositrons, 10% of the above fixed manufacturing overhead costs could be avoided.

Question A. Assume Hanson Inc. has no alternative use for the facilites presently devoted to production of the prositrons. If the outside supplier offers to sell the prositrons for $850 each, should Hanson, Inc. accept the offer? Fully support your answer with calculations.

Question B. Assume Hanson Inc. could use the facilities presently devoted to production of the prositrons to expand production of another product that would yield an additional contribution margin of $50,000 annually. What is the maximum price Hanson, Inc. should be willing to pay the outside supplier for prositrons?