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Sunshine state fruit company sells premium-quality oranges

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Sunshine State Fruit Company sells premium-quality oranges and other citrus fruits by mail order. Protecting the fruit during shipping is important, so the company has designed & produces shipping boxes. The annual cost to make 80,000 boxes is:

Material

$112,000

Labour

20,000

Indirect manufacturing costs %u2013 variable

16,000

Indirect manufacturing costs %u2013 fixed

60,000

Total

208,000

Therefore, the box Cost per box averages = $2.60

Suppose Weyerhaeuser submits a bid to supply Sunshine State with boxes for $2.10 per box. Sunshine must give Weyerhaeuser the box design specifications, and the boxes will be made according to those specs.

  1. How much, if any, would Sunshine State save by buying the boxes from Weyerhaeuser?
  2. What subjective factors should affect Sunshine%u2018s decision about whether to make or buy the boxes?
  3. Suppose all the fixed costs represent depreciation on equipment that was purchased for $600,000 and is just about at the end of its 10-year life. New replacement equipment will cost $800,000 and is also expected to last 10 years. In this case, how much, if any, would Sunshine save by buying the boxes from Weyerhaeuser?

Reference no: EM13581583

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