The management of Shatner Manufacturing Company is trying to decide whether to c
ID: 2565612 • 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. 8,100 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 $ 4.50 , indirect labor $ 0.48 , utilities $ 0.44 .
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 8,100 CISCO units from a supplier is $ 81,505 .
5. If CISCO units are purchased, freight and inspection costs would be $ 0.35 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 : To produce the component CISCO.
Make Buy Net Income increase (decrease) Direct material 37098 0 -37098 Direct labor 36450 0 -36450 Indirect labor 3888 0 -3888 Utilities 3564 0 -3564 Depreciation 2830 2830 0 Property tax 970 970 0 Insurance 1540 1540 0 Purchase price 0 81505 +81505 freight & inspection 0 2835 +2835 Receiving cost 0 1260 +1260 Total Annual Costs $86340 $90940 +4600Related Questions
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