Brief Exercise 23-4 Vintech Manufacturing incurs unit costs of $6 ($5 variable a

Question

Brief Exercise 23-4

Vintech Manufacturing incurs unit costs of $6 ($5 variable and $1 fixed) in making a subassembly part for its finished product. A supplier offers to make 15,900 of the part at $6.30 per unit. If the offer is accepted, Vintech will save all variable costs but no fixed costs.

Prepare an analysis showing the total cost saving, if any, Vintech will realize by buying the part. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)

Make
Buy Net Income
Increase
(Decrease) Variable manufacturing costs $ $ $ Fixed manufacturing costs Purchase price     Total annual cost $ $ $

Explanation / Answer

Solution:

The decision should be-

make the part.

Make Buy Net income - Increase ( Decrease ) Variable manufacturing costs                          79,500                                     -   -                           79,500 Fixed manufacturing costs                          15,900                                     -   -                           15,900 Purchase price                                    -                           100,170                            100,170 Total annual cost                          95,400                         100,170                                4,770 The net income will decrease if the product is bought from supplier by $ 4,770

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