Each of the following situations is independent

Transcribed Image Text: Question 3:
Each of the following situations is independent.
A. Vallis Inc. manufactures machine parts for military
an offer from another military subcontractor to provide 2.000 units of product ZR17 for
$120,000. If Vallis does not purchase these parts fi
continue to produce them in-house at the following
drones. The company is considering
‘om the subcontractor, it must
costs:
Cosf
per Unit
$28
$18
$16
$4
Direct materials
Direct labour
Variable overhead
Allocated fixed overhead
Required:
a. Analyze the offer quantitatively to determine if Vallis should continue to manufacture
the component or outsource it.
b. Outline at least three qualitative considerations that Vallis should consider in this
decision. Why are these factors that you have outlined important? Transcribed Image Text: B. Wallace Company manufactures a variety of valves and fittings used in industrial
plumbing that are sold to customers in other Canadian provinces. Currently, the
company is operating at about 70 percent capacity, and is quite profitable. Tudor
Industries, located in Wales, has approached management to purchase 120,000 units of
a pressure valve, and is prepared to pay $21 per valve.
Wallace’s product cost for each pressure valve includes the following:
Direct materials
$ 6
Direct labour
8
Variable manufacturing overhead
Fixed manufacturing overhead
Total manufacturing cost
3
$23
There will be no sales commission costs on this order, as it has come directly from
management, and Tudor will cover all shipping costs. Currently, the pressure valves are
sold for $30 to its other customers. Production management believes that it can handle
the Tudor order without disrupting its current scheduled production. The order, however,
will require an additional fixed overhead cost of $48,000 for supervision and clerical
costs.
Required:
Prepare an analysis to support whether Wallace should accept this special order or not.
Show all calculations. Identify at least two strategic qualitative factors that Wallace
should consider in its decision as to whether this order should be accepted.

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