Question

Question 2 Emil Manufacturing incurs unit costs of $7.20 ($5.20 variable and $2.00 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 12,600 of the parts for $5.80 per unit. If it accepts the offer, Emil will save all variable costs and $1 of fixed costs. Prepare an analysis showing the total cost savings, if any, that Emil will realize by buying the part. (Round per unit answers to 2 decimal places, e.g. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number, e.g. -15,000 or parenthesis, e.g. (15,000).) Net Income Increase Per Unit Make (Decrease) Buy Number of units: Variable manufacturing costs $ $ Fixed manufacturing costs Purchase price Total annual cost $ $ make the part The decision should be to

Answer 1

		Per Unit	Make	Buy	Net Income Increase (Decrease)
Number of units	12,600
Variable manufacturing cost		5.20	12,600 x 5.20 = 65,520	0	65,520
Fixed manufacturing cost		2	12,600 x 2 =25,200	12,600 x 1 = 12,600	12,600
Purchase price		5.80	0	12,600 x 5.80 = 73,080	-73,080
Total annual cost			90,720	85,680	5,040
The decision should be to	Buy the units

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