The management of Shatner Manufacturing Company is trying to decide whether to c

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. 8,100 units of CISCO were produced in the Machining Department. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.22, direct labor $4.51, indirect labor $0.48, utilities $0.38. 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. The lowest quotation for 8,100 CISCO units from a supplier is $86,010. If CISCO units are purchased, freight and inspection costs would be $0.37 per unit, and receiving costs totaling $1,300 per year would be incurred by the Machining Department. Prepare an incremental analysis for CISCO. (Enter negative amounts using cither a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Explanation / Answer

units price total material 8100 5.22 42282 labor 8100 4.51 36531 indirect labor 8100 0.48 3888 utilities 8100 0.38 3078 direct cost of production direct allocated 85779 depreciation 2090 960 3050 property taxation 540 410 950 insurance 880 590 1470 cost og goods manufactured 91249 cost of purchase 8100 86010 freight and inspection 8100 0.37 2997 receiving cost 1300 Allocated cost to other department cost of purchase 90307 Incremental saving if Cisco is purchased 942

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