The management of Shatner Manufacturing Company is trying to decide whether to c
ID: 2447702 • 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, 2017. 1. 7,900 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $4.58, direct labor $4.51, indirect labor $045, utilities $0.41. 3. Fixed manufacturing costs applicable to the production of CISCO were: 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 7,900 CISCO units from a supplier is $78,853. 5. If CISCO units are purchased, freight and inspection costs would be $0.38 per unit, and receiving costs totaling $1,260 per year would be incurred by the Machining Department. (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).)Explanation / Answer
Decision: since the cost of buying Cisco is less than manufacturing , the company should buy Cisco.
Particulars Make Cisco Buy Cisco Net income Increase/(decrease) DM 7900*4.58 36,182 36,182 DL 7900*4.51 35,629 35,629 IDL 3,555 3,555 Utilities 3,239 3,239 Depreciation 2,760 2,760 property taxes 850 850 Insurances 1,480 1,480 Purchase price 78,853 (78,853) Freight 3,002 (3,002) receiving cost 1,260 (1,260) Total Annual cost 83,695 83,115 580Related Questions
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