x.Hmellspacing=\"0\" cellpadding=\"0\" width=\"100%\" border=\"0\"> ALL THE NUMB

Question

x.Hmellspacing="0" cellpadding="0" width="100%" border="0"> ALL THE NUMBERS UNDER NET INCOME INCREASE/DECREASE IS WRONG The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called WISCO, is a component of the company's finished product. The following information was collected from the records and production data for the year ending December 31, 2008. 7,000 units of WISCO were produced in the Machining Department. Variable manufacturing costs applicable to the production of each WISCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40. Fixed manufacturing costs applicable to the production of WISCO were: Cost Item Direct Allocated Depreciation $2,100 $ 900 Property taxes 500 200 Insurance 900 600 $3,500 $1,700 All variable manufacturing and direct fixed costs will be eliminated if WISCO is purchased. Allocated costs will have to be absorbed by other production departments. The lowest quotation for 7,000 WISCO units from a supplier is $70,000. If WISCO units are purchased, freight and inspection costs would be $0.40 per unit, and receiving costs totaling $1,250 per year would be incurred by the Machining Department. Prepare an incremental analysis for WISCO. Your analysis should have columns for (1) Make WISCO, (2) Buy WISCO, and (3) Net Income Increase/(Decrease). Net Income Make WISCO Buy WISCO Increase (Decrease) Direct materials $ 33,600 $ 0.00 $

Explanation / Answer

Make WISCO Buy WISCO Increase/(Decrease) Direct materials 7,000 x 4.80 33,600 0 33,600 Direct labor      7,000 x 4.30 30,100 0 30,100 Indirect labor     7,000 x 0.43 3,010 0 3,010 Utilities     7,000 x 0.40 2,800 0 2,800 Depreciation     3,000 900 2,100 Property taxes     700 200 500 Insurance     1,500 600 900 Purchase price     0 70,000 (70,000) Freight and inspection     0 2,800 (2,800) Receiving costs 0 1,250 (1,250)     Total annual cost $ 74,710 75750 (1,040) Make WISCO Buy WISCO Increase/(Decrease) Direct materials 7,000 x 4.80 33,600 0 33,600 Direct labor      7,000 x 4.30 30,100 0 30,100 Indirect labor     7,000 x 0.43 3,010 0 3,010 Utilities     7,000 x 0.40 2,800 0 2,800 Depreciation     3,000 900 2,100 Property taxes     700 200 500 Insurance     1,500 600 900 Purchase price     0 70,000 (70,000) Freight and inspection     0 2,800 (2,800) Receiving costs 0 1,250 (1,250)     Total annual cost $ 74,710 75750 (1,040)

Make WISCO Buy WISCO Increase/(Decrease) Direct materials 7,000 x 4.80 33,600 0 33,600 Direct labor      7,000 x 4.30 30,100 0 30,100 Indirect labor     7,000 x 0.43 3,010 0 3,010 Utilities     7,000 x 0.40 2,800 0 2,800 Depreciation     3,000 900 2,100 Property taxes     700 200 500 Insurance     1,500 600 900 Purchase price     0 70,000 (70,000) Freight and inspection     0 2,800 (2,800) Receiving costs 0 1,250 (1,250)     Total annual cost $ 74,710 75750 (1,040)

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