Question

ng Company is trying to decide whether to contine t ung p ortowy The flowing information was collected from the counting records and production 1.7.500 of CISCO were produced in the Machining Department 2. Varma c e to the reduction of each CISCO Sredmeti 4.77. rector 44. rector 104, 10:42 mo r gos cable to the production of CISCO from an oude supplier. The part called CISCO s for the wending December 11, 2017 o nt of the finished Costem Deco Direct 2.100 Allocated 900 $3,510 .10 All ri The t W CISCO (a) g orected will be limited CISCO is purchased A d wo or 7.00 CISCO wp .635. her and inspection costs would be 10.38 per and rec o increment s for CISCO (Enter negative amount with o b y production departments o th rd e e d by the Machining Department parentheses (5) by CISCO Director

Answer 1

a.

	Make CISCO	Buy CISCO	Net Income Increase ( Decrease )
Direct materials ( 7,900 * $ 4.77 )	$ 37,683	0	$ 37,683
Direct labor ( 7,900 * $ 4.44)	35,076	0	35,076
Indirect labor ( 7,900 * $ 0.40)	3,160	0	3,160
Utilities ( 7,900 * $ 0.42 )	3,318	0	3,318
Depreciation	2,100	0	2,100
Property Taxes	510	0	510
Insurance	900	0	900
Purchase price	0	79,625	(79,625)
Freight and inspection	0	3,002	(3,002)
Receiving cost	0	1,310	(1,310)
Total Annual Costs	$ 82,747	$ 83,937	$ ( 1,190)

b.

The company should

make CISCO

c. Yes. The company should Buy CISCO.

Opportunity cost of $ 3,000 is relevant for decision making in this case.

Therefore total cost of make CISCO = $ 82,747 + $ 3,000 = $ 85,747.

As the total cost of make CISCO exceeds total cost of buy CISCO by $ 1,810, Shatner Company should buy CISCO.