Bartley Manufacturing incurs unit costs of $8 ($5 variable and $3 fixed) in maki

Question

Bartley Manufacturing incurs unit costs of $8 ($5 variable and $3 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 10,000 of the assembly part at $5.30 per unit. If the offer is accepted, Bartley will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Bartley will realize by buying the part. (If an amount should be blank, enter a zero. All boxes must be filled to be correct. If amount decreases net income, use either a negative sign preceding the number eg -45 or parentheses eg (45).)

Explanation / Answer

  Analysis showing the total cost savings:                                                                         Make                       Buy                 Net Income                                                                                                                                Increase/Decrease Variable cost (10,000*5)                               $50,000                       0                     $50,000 Fixed cost (10,000*3)                                     30,000                   30,000                      0 Purchasing price(10,000*$5.30)                         0                         53,000                (53,000)                                                                   ____________     _____________   ______________ Total annual cost                                          $80,000                   $83,000                $(3,000)                                                                  _____________   ______________   ______________ This analysis indicates that Bartley manufacturing company will incur $3,000 of additional cost by buying the assemble part .                                                                         Make                       Buy                 Net Income                                                                                                                                Increase/Decrease Variable cost (10,000*5)                               $50,000                       0                     $50,000 Fixed cost (10,000*3)                                     30,000                   30,000                      0 Purchasing price(10,000*$5.30)                         0                         53,000                (53,000)                                                                   ____________     _____________   ______________ Total annual cost                                          $80,000                   $83,000                $(3,000)                                                                  _____________   ______________   ______________ This analysis indicates that Bartley manufacturing company will incur $3,000 of additional cost by buying the assemble part .

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