Question

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Sheffield Industries incurs unit costs of $6 ($4 variable and $2 fixed) in making an assembly part for its finished product. A supplier offers to make 18,800 of the assembly part at $5 per unit. If the offer is accepted, Sheffield will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Sheffield will realize by buying the part. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Make		Buy		Net Income Increase (Decrease)
Variable manufacturing costs		$		$		$
Fixed manufacturing costs
Purchase price
Total annual cost		$		$		$

The decision should be to makebuy the part.

Answer 1

	Make	Buy
Variable Manufacturing costs(18800*4)	75200	-	75200
Fixed manufacturing costs (18800*2)	37600	37600	0
Purchase price (18800*5)	-	94000	(94,000)
Total	112800	131600	(18800)

the decision should be to make thr possible