Special Decisions Exercises Textel is thinking about having one of it cost of ma

Question

Special Decisions Exercises Textel is thinking about having one of it cost of manufacturing 1,000 units follows: 1. s products manufactured by a subcontractor. Currently, the Direct material Direct labor Factory overhead (30% variable) $45,000 30,000 98,000 Textel can buy 1,000 units from a subcontractor for $100,000. Prepare a differential analysis report to determine if Textel should make or buy the product 2. Snipe Company has been purchasing a component, Part Q, for $19.20 a unit. Snipe is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q is estimated as follows: $11.50 4.50 1.12 Fixed factory overhead3.15 $20.27 Direct materials Direct labor Variable factory overhead Total Prepare a differential analysis to determine if Snipe should make or buy Part Q. What is the best option? How much would the savings be?

Explanation / Answer

Dear student, only one question is allowed at a time. I am answering the first question

In the make of buy decision, only Variable costs are relevant as Fixed costs are sunk costs and have no impact on decision making as they have already been incurred by the organization

So, Variable costs of manufacturing 1,000 units

= Direct material + Direct labor + Variable factory overhead

= $45,000 + $30,000 + $98,000 x 30%

= $45,000 + $30,000 + $29,400

= $ 104,400

As we can find, cost of buying is $100,000 which is less than cost of manufacturing, so the product should be bought instead of manufacturing

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