Question

Manson Industries incurs unit costs of $7 ($5 variable and $2 fixed) in making an assembly part for its finished product. A supplier offers to make 19,400 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).)

Answer 1

Answer:

($19,400)

Manson Industries decision is to make the product.

Explanation:

The Preparation of total cost saving is shown below:-

                                      Make           Buy       Net Income Increase/

                                                                        Decrease

Variable Manufacturing  $97,000       -             $97,000

Cost                                                                                    

(19,400 × $5)

Fixed manufacturing       $38,800   $38,800

(19,400 × $2)

Purchase Price                                  $116,400     ($116,400)

(19,400 × $6)

Total annual cost         $135,800    $155,200      ($19,400)

So, Manson Industries decision is to make the product.