Question

Bridgeport Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:

Direct materials		$	3.80
Direct labour			27.80
Variable overhead			16.20
Fixed overhead			26.90
Total		$	74.70

Regina Corp. has contacted Bridgeport with an offer to sell it 5,100 subassemblies for $54.20 each.

Should Bridgeport make or buy the subassemblies? Create a schedule that shows the total quantitative differences between the two alternatives.

Cost to make:

Cost to buy:

The accountant decides to investigate the fixed costs to see whether any incremental changes will occur if the subassembly is no longer manufactured. The accountant believes that Bridgeport will eliminate $51,510 of fixed overhead if it accepts the proposal. Does this new information change the decision?

Cost to Make:

Cost to Buy:

Answer 1

Nasmer 1) Statement of comparative cast Benefit (per unit) Cost to make & 1 (per unit) Cost to Buy & Direct materials 3.80 Purchase last 54.20 Direct labour 27.80 Variable Querhead 16.20 Total $47,80 Total $ 54,20 Decision :- Bridgeport Corporation should manufacture the sub- assembly as there is a saning of $6.4 / unit. ii) If Brideport accepts the proposal and opts for Purchase of sub assembly & Sanings of fired Querhead 51,510 loss on Purchase ($6.4 x 5100) 32, 640 Met Benefit $ 18,870 Decision: Bridepat should accept the proposal and opts to buy the sub assembly as there is an incremental benefit of $ 18,870.