Question

Current Artempein Progress The management of Ivanhoe Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO is a component of the company's finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2020 1.8,000 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.30, direct labor $425, indirect labor $0.45, utilities $0.38 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Direct Allocated Depreciation $2,000 $930 Property taxes 500 410 Insurance 950 $3,450 600 $1,940 All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will not be eliminated if CISCO is purchased. So if CISCO is purchased, the foxed manufacturing costs allocated to CISCO will have to be absorbed by other production departments, 4. The lowest quotation for 8.000 CISCO units from a supplier is $83,660 5.1 CISCO units are purchased, freight and inspection costs would be $0.37 per unit, and receiving costs totaling $ 1.260 per year would be incurred by the Machining Department

Answer 1

Solution:

Incremental Analysis - Invanhoe Manufacturing Company
Particulars	Make CISCO	Buy CISCO	Net Income Increase (Decrease)
Direct material	$42,400.00		$42,400.00
Direct labor	$34,000.00		$34,000.00
Indirect labor	$3,600.00		$3,600.00
Utilities	$3,040.00		$3,040.00
Depreciation	$2,930.00	$930.00	$2,000.00
Property taxes	$910.00	$410.00	$500.00
Insurance	$1,550.00	$600.00	$950.00
Purchase price		$83,660.00	-$83,660.00
Freight and inspection		$2,960.00	-$2,960.00
Receiving costs		$1,260.00	-$1,260.00
Total annual costs	$88,430.00	$89,820.00	-$1,390.00

Management should make the CISO