Kuhn Bicycle Company has been manufacturing its own seats for its bicycles. The
ID: 2574006 • Letter: K
Question
Kuhn Bicycle Company has been manufacturing its own seats for its bicycles. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 60% of direct labor cost. The direct materials and direct labor cost per unit to make the bicycle seats are $8.00 and $9.00, respectively. Normal production is 50,000 bicycles per year. A supplier offers to make the bicycle seats at a price of $21 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $30,000 of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products. Prepare the incremental analysis for the decision to make or buy the bicycle seats. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any field blank. Enter 0 for the amounts)
How should the incorrect answers be calculated?Thanks!
Net Income Increase (Decrease) Make Buy Direct Material 4000001 400000 Direct Labor 450000 450000 ariable Manufacturing Costs Fixed Manufacturing Costs Purchase Price 270000 270000 300001 30000 1050000 (1050000) Total annual cost 1150000 1050000 100000Explanation / Answer
Net Income will increase by $70,000 is bicycles are porchased.
Make Buy Net Income 50,000 bicycles Per Unit 50,000 bicycles Increase/ (Decrease) Particulars Amount ($) Amount ($) Direct Material 400,000 8.00 0 400,000 Direct Labour 450,000 9.00 0 450,000 Variable Manufacturing overhead (60% of Direct labour costs) 270,000 5.40 0 270,000 Fixed manufacturing overhead 30,000 0.54 30,000 0 Purchase Cost 21.00 1,050,000 -1,050,000 Total 1,150,000 1,080,000 70,000Related Questions
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