Vintech Manufacturing incurs unit costs of $8 ($5 variable and $3 fixed) in maki
ID: 2377597 • Letter: V
Question
Vintech Manufacturing incurs unit costs of $8 ($5 variable and $3 fixed) in making a subassembly part for its finished product. A supplier offers to make 10,300 of the part at $5.70 per unit. If the offer is accepted, Vintech will save all variable costs but no fixed costs.
Prepare an analysis showing the total cost saving, if any, Vintech will realize by buying the part. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)
Make
Buy Net Income
Increase
(Decrease) Variable manufacturing costs $ $ $ Fixed manufacturing costs Purchase price Total annual cost $ $ $ Vintech Manufacturing incurs unit costs of $8 ($5 variable and $3 fixed) in making a subassembly part for its finished product. A supplier offers to make 10,300 of the part at $5.70 per unit. If the offer is accepted, Vintech will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Vintech will realize by buying the part. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)
Explanation / Answer
Hi,
Please find the answer as follows:
The decision should be to make the product. This is because buying the product from outside decreases the net income by 7210.
Thanks.
Make Buy Net Income (Increase/Decrease) Variable manufacturing costs 51500 0 51500 Fixed manufacturing costs 30900 30900 0 Purchase price 0 58710 -58710 Total annual cost 82400 89610 -7210
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