The management of Shatner Manufacturing Company is trying to decide whether to c
ID: 2419600 • Letter: T
Question
The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company’s finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2014. 1. 8,100 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $4.59, direct labor $4.51, indirect labor $0.41, utilities $0.41. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Direct Allocated Depreciation $2,060 $ 890 Property taxes 490 290 Insurance 910 650 $3,460 $1,830 All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments. 4. The lowest quotation for 8,100 CISCO units from a supplier is $80,631. 5. If CISCO units are purchased, freight and inspection costs would be $0.37 per unit, and receiving costs totaling $1,260 per year would be incurred by the Machining Department. Collapse question part (a) Prepare an incremental analysis for CISCO. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make CISCO Buy CISCO Net Income Increase (Decrease) Direct material $ $ $ Direct labor Indirect labor Utilities Depreciation Property taxes Insurance Purchase price Freight and inspection Receiving costs Total annual cost $ $ $ Click if you would like to Show Work for this question: Open Show Work
Explanation / Answer
Make CISCO Direct Material 4.59 Direct Labour 4.51 Indirect Labour 0.41 Utilities 0.41 Total variable Cost 9.92 Total variable Cost for 8100 units(a) 80352 Fixed Cost Direct Allocated Deprication(2060+890) 2950 Property Tax(490+290) 780 Insurance(910+650+3460+1830) 6850 Total Fixed Cost(b) 10580 Total Make Cost(a) +(b) 90932 Buy Cisco Quote price 80631 Freight & Inspection(8100*0.37) 2997 Receiving Cost 1260 Total Buy Cost 84888 Buy Cisco will be better as there will be increase income of $ 6044
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