Manson Industries incurs unit costs of $6 ($4 variable and $2 fixed) in making a

Question

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 14,000 of the assembly part at $6 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).)

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

Explanation / Answer

Prepare an analysis showing the total cost saving, if any, Manson will realize by buying the part.

Make Buy Net Income
Increase (Decrease) Variable manufacturing cost 56000 56000 Fixed manufacturing cost Purchase price 84000 (84000) Total annual cost 56000 84000 (28000)

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