Question

Prepare a make or buy analysis. XUS Prepare a make or buy analysis - Excel ? - X FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In Calibri -11-AA Paste B IU, L - A Alignment Number Conditional Format as Cell Cells Formatting* Table Styles - Clipboard Font El Styles A1 X for Alanco, Inc. manufactures a variety of products and is currently maunfacturing all A B C D E HI Alanco, Ind. manufactures a variety of products and is currently maunfacturing all of its own component parts. 2 An outside supplier has offered to sell one of those components to Alanco. To evaluate this offer, the following 3 information has been gathered relating to the cost of producing the component internally: $ 6 7 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable* Fixed manufacturing overhead, common but allocated Total cost 4.00 6.00 2.00 5.00 8.00 25.00 10 Supplier price $ 21.00

Answer 1

Sol.:- Alanco Inc. Per Unit Differential Cost 12,000 Vuit Make BUY 1. Make I Buy Cost of Purchasing $ 21 $ 252,000 Direet Materials $4 $ 48,000 Direct labour. $ 72,000 Variable Manufacturing Overhead $2 $ 24,000 Fixed Manufacturing Over heard traceble. $ 3.5 $ 42.000 Fixed Manufacturing Overhead. Common Total Cost $15.5 $ 21 $ 186,000 $252,000 Difference in favour of make= Cost of Buy 12.000 unit - Cost of Manufacturing = $ 252,000 - $ 186,000 = $ 66,000. Decision o- Alanco Inc. should make the component. It should reject the offer of buying from outside Supplier as the Cost of buying is higher than the cost of making.

Working Note in Cost of purchasing = Unit used per yeart Supplier's price. ° 12.000 Unit X $ 21 = $ 252,000 Cost of Direct Material = Unit produced & Unit Cost of Dired Material = 12000 Vu't x $4 = $48.000 Cost of Direct labour = Unit produced & Cost of labour fervuit = 12000 vuit X $ 6 = $72,000 Variable Manufacturing over head - Unit produced & Variable Mfg. Cost pertuit • 12.000 vuit * $ 2 = $24000 Fixed Manufacturing Overhead Traceable => = 'uit Custom fixed mig. Overhead Tresceable x 70% = $5 x 70% È $3.5 = Unit produced 8 $3.5 = 12,000 Vuit x $3.5 = $42.000