Brief Exercise 20-4 Manson Industries incurs unit costs of $6 ($4 variable and $

Question

Brief Exercise 20-4 Manson Industries incurs unit costs of $6 ($4 variable and $2 fixed) in making an assembly part for its finished product. A supplier offers to make 13,500 of the assembly part 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 Buy Variable manufacturing costs Fixed manufacturing costs Purchase price Total annual cost The decision should be tothe part. Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT INTERACTIVE TUTORIAL

Explanation / Answer

The decision should be to make the part.

Make Buy Net income Increase(Decrease) Variable manufacturing costs $54,000 $0 $54,000 Fixed manufacturing costs $27,000 $27,000 $0 Purchase price $0 $67,500 ($67,500) Total annual cost $81,000 $94,500 ($13,500)

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