Hanson, Inc

question 31

Essay

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 the prositron follow: 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.
Required:
a. Assume Hanson, Inc. has no alternative use for the facilities 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 appropriate calculations.
b. Assume that 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?

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Definitions:

Dream Interpretation

The analysis of the hidden meaning or significance of dreams, often used in psychotherapy and psychoanalysis.

Psychosexual Development

A Freudian theory that describes how personality develops during childhood through a series of stages focused on erogenous zones.

Fixation

An obsessive focus or attachment to a particular stage of development, object, or activity, often resulting in stagnation in psychological growth.

Unconscious

Part of the mind that is inaccessible to the conscious mind but that affects behaviors and emotions.