Exercise 12-5 coarge d to bnoductomat the rute o, 6 r direcs r costhr disecthm s
ID: 2527431 • Letter: E
Question
Exercise 12-5 coarge d to bnoductomat the rute o, 6 r direcs r costhr disecthm stemain and direen ab o Cost per uni o nakea tyr of fhvari ahe .aufardu in erheadis charged to production at the rate of 65% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finals are $3.85 and $4.75, respectively. Normal production is 29,700 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.06 per unit. If Novak accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $43,000 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. Prepare the incremental analysis for the decision to make or buy the finials. (Round answers to 0 decimal places, e.g. 1250. If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45) Net Income Increase (Decrease) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual costExplanation / Answer
Make
Buy
Net Income
Increase(Decrease)
Direct Materials(29700 x $3.85)
$114345
$0
$114345
Direct Labor(29700 x $4.75)
$141075
$0
$141075
Variable overhead costs($141075 x 65%)
$91699
$0
$91600
Fixed manufacturing Costs
$0
$0
$0
Purchase Price(29700 x $13.06)
$0
$387882
$387882(Decrease)
Total Annual Cost
$347119
$387882
$40763(Decrease)
Note: Since fixed manufacturing costs will remain the same whether or not the units are made or purchased, they are not relevant and should not be included.
Make
Buy
Net Income
Increase(Decrease)
Direct Materials(29700 x $3.85)
$114345
$0
$114345
Direct Labor(29700 x $4.75)
$141075
$0
$141075
Variable overhead costs($141075 x 65%)
$91699
$0
$91600
Fixed manufacturing Costs
$0
$0
$0
Purchase Price(29700 x $13.06)
$0
$387882
$387882(Decrease)
Total Annual Cost
$347119
$387882
$40763(Decrease)
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