Brief Exercise 7-4 Manson Industries incurs unit costs of $6 ($4 variable and $2
ID: 2460252 • Letter: B
Question
Brief Exercise 7-4
Manson Industries incurs unit costs of $6 ($4 variable and $2 fixed) in making an assembly part for its finished product. A supplier offers to make 17,900 of the assembly part at $5 per unit. If the offer is accepted, Manson will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Manson will realize by buying the part. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Brief Exercise 7-4
Manson Industries incurs unit costs of $6 ($4 variable and $2 fixed) in making an assembly part for its finished product. A supplier offers to make 17,900 of the assembly part at $5 per unit. If the offer is accepted, Manson will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Manson will realize by buying the part. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Explanation / Answer
Particulars
Make
Buy
Net Income Increase( Decrease)
Variable Manufacturing Cost
71,600
71,600
Fixed Manufacturing cost
35,800
35,800
-
Purchase price
89,500
(89,500)
Total Annual Cost
107,400
125,300
(17,900)
Make is better as cost is less
Fixed cost not avoidable
Particulars
Make
Buy
Net Income Increase( Decrease)
Variable Manufacturing Cost
71,600
71,600
Fixed Manufacturing cost
35,800
35,800
-
Purchase price
89,500
(89,500)
Total Annual Cost
107,400
125,300
(17,900)
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