Brief Exercise 20-4 Manson Industries incurs unit costs of $7 $4 variable and $3

Question

Brief Exercise 20-4 Manson Industries incurs unit costs of $7 $4 variable and $3 fixed n making an assembly part for its fir shed product. A supp er offers to make·7 000 the assembl alt at 5 per unit. If the offer is accepted, Manson will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Manson will realize by buying the part. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Variable manufacturing costs Fixed manufacturing costs Purchase price Total annual cost The decision should be to the part. Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Differential analysis :

The decision should be to make the part.

Make Buy Net income increase (decrease) Variable manufacturing costs 68000 68000 Fixed manufacturing costs 51000 51000 None Purchase price 85000 (85000) Total annual cost 119000 136000 (17000)

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