Manson Industries incurs unit costs of $7.48 ($4.53 variable and $2.95 fixed) in

Question

Manson Industries incurs unit costs of $7.48 ($4.53 variable and $2.95 fixed) in making a subassembly part for its finished product. A supplier offers to make 17,000 of the assembly part at $5.20 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).) Should Manson make or buy the part?

Explanation / Answer

Make Buy Net Income Increase/ Decrease Variable Manufacturing Cost 4.53 4.53 Fixed Manufacturing Cost 2.95 2.95 0 Purchase Price 5.2 -5.2 Total Annual Cost Net Profit/ Loss -0.67 The decision should be to make the part

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