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G R O U P C A S E 3: H O S P I T A L S U P P L Y, I N C Given Information: Hospital Supply, Inc.’s Normal Volume (in units per month) | 3,000 | Regular Selling Price (per unit) | 4,350 | Costs per Unit for Hydraulic Hoists | | | Unit Manufacturing Costs: | | | Variable Materials | 550 | | Variable Labor | 825 | | Variable Overhead | 420 | | Fixed Overhead | 660 | | Total Unit Manufacturing Costs | | $2,455 | | | | Unit Marketing Costs: | | | Variable | 275 | | Fixed | 770 | | Total Unit Marketing Costs | | 1,045 | | | | Total Unit Costs | | …show more content…
Any price higher than this would already be profit for Hospital Supply, Inc. in contrast to being valueless when not sold. 6) A proposal is received from an outside contractor who will make 1,000 hydraulic hoist units per month and ship them directly to Hospital Supply’s customers as orders are received from Hospital Supply’s sales force. Hospital Supply’s fixed marketing costs would be unaffected, but its variable marketing costs would be cut by 20 percent (to $220 per unit) for these 1,000 units produced by the contractor. Hospital Supply’s plant would operate at two-thirds of its normal level, and total fixed manufacturing costs would be cut by 30 percent (to $1,386,000). What in-house unit cost should be used to compare with the quotation received from the supplier? Should the proposal be accepted for a price (i.e., payment to the contractor) of $2,475 per unit? In each instance, explain and show the basis of your answer. Hydraulic Hoist from Outside Contractor | 1,000 | Hospital Supply's Fixed Marketing Costs | Unaffected | Variable Marketing Costs (Cut by 20%) | 220.00 | Plant will operate at 2/3 of its normal level | | Total Fixed Manufacturing Costs (Cut by 30%) | 1,386,000.00 | | In-HouseProduction | ContractedAt 1000 Units | Revenue | 13,050,000 | 13,050,000 | Variable Marketing Costs | 825,000 | 770,000 | Variable Manufacturing Costs |