Question

Chapter 7 Assignment i Saved Frannie Fans currently manufactures ceiling fans that include remotes to operate them. The current cost to manufacture 10,320 remotes is as follows: 10 points Cost Direct materials Direct labor Variable overhead Fixed overhead Total $ 67,080 $ 56,760 $ 30,960 $ 51,600 $ 206, 400 eBook Frannie is approached by Lincoln Company which offers to make the remotes for $18 per unit. Print References Required: 1. Compute the difference in cost between making and buying the remotes if none of the fixed costs can be avoided. What is the change in net income? 2. Compute the difference in cost between making and buying the remotes if $20,640 of the fixed costs can be avoided. What is the change in net income? 3. What is the change in net income if fixed cost of $20,640 can be avoided and Frannie could rent out the factory space no longer in use for $20,640? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the difference in cost between making and buying the remotes if none of the fixed costs can be avoided. What is the change in net income? per unit Difference in cost Change in net income Required 1 Required 2 >

Answer 1

1) Difference in Cost and change in net income

	Make	Buy
Direct material	6.50
Direct labor	5.50
Variable overhead	3
Purchase cost		18
Total relevant cost per unit	15	18

Difference in Cost per unit = 15-18 = -3

Change in Net income = Decrease by (3*10320) = -30960

2) Difference in Cost and change in net income

	Make	Buy
Direct material	6.50
Direct labor	5.50
Variable overhead	3
Fixed overhead (20640/10320)	2
Purchase cost		18
Total relevant cost per unit	17	18

Difference in Cost per unit = 17-18 = -1

Change in Net income = Decrease by (1*10320) = -10320

3) Difference in Cost and change in net income

	Make	Buy
Direct material	67080
Direct labor	56760
Variable overhead	30960
Fixed cost	20640
Opportunity Cost	20640
Purchase cost (10320*18)		185760
Total relevant cost per unit	196080	185760

Change in Net income = Increase by (196080-185760) = 10320