The management of Shatner Manufacturing Company is trying to decide whether to c
ID: 2444411 • 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, 2014. 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 54.89, direct labor $4.62, indirect labor $0.43, utilities $0.38. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Direct AllocatedS Depreciation 52,030 5950 Property taxes 540 430 Insurance 860 650 53,430 52,030 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 584,209. 5. If CISCO units are purchased, freight and inspection costs would be $0.35 or unit, and receiving costs totaling 51,270 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
In buying the product theres is a loss 1292 hence the company should continue with making the CISCO instead of buying it
Particulars Make CISCO Buy CISCO Net Income Increase/(Decrease) Direct Material 39609 0 39609 Direct Labour 37422 0 37422 Indirect Labour 3483 0 3483 Utilities 3078 0 3078 Depreciation 2980 950 2030 Property Taxes 970 430 540 Insurance 1510 650 860 Purchase Price 0 84209 -84209 Freight and inspection 0 2835 -2835 Receiving Costs 0 1270 -1270 Annual Cost 89052 90344 -1292Related Questions
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