Posted: July 24th, 2016

What would Sunshine State save by buying the boxes from Weyerhaeuser?

Sunshine State Fruit Company makes 80,000 boxes a year at the following costs:

Materials 112,000
Labor 20,000
Indirect manufacturing costs:
Variable 16,000
Fixed 60,000

Suppose Weyerhaeuser agrees to supply Sunshine State with boxes for $2.10 per box.

1. What would Sunshine State save by buying the boxes from Weyerhaeuser?

2. What qualitative factors should Sunshine State consider in this decision?

3. Suppose 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. Replacement equipment will cost $800,000 and will last 10 years. In this case, how much, if any, would Sunshine State save by buying the boxes from Weyerhaeuser?