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Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel...

Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel assembly for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc., offered to sell these rear wheel assemblies to Mobility. If Mobility makes the assembly, its cost per rear wheel assembly is as follows (based on annual production of 1,800 units):

Direct materials $ 29
Direct labor 105
Variable overhead 18
Fixed overhead 44
Total $ 196

Trailblazers has offered to sell the assembly to Mobility for $170 each. The total order would amount to 1,800 rear wheel assemblies per year, which Mobility's management will buy instead of make if Mobility can save at least $10,000 per year. Accepting Trailblazers's offer would eliminate annual fixed overhead of $35,850.


Required:

a. Prepare a schedule that shows the total differential costs. (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

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Answer #1

SOLUTION:

Status Quo Alternative Diff.
Trailblazers’ offer (1800 * $170)              306,000     306,000 higher
Materials (1800 * $29) 52,200 52,200 lower
Labor (1800 * $105) 189,000 189,000 lower
Variable OH (1800 * $18) 32,400 32,400 lower
Fixed OH (1800 * $44) 79,200 43,350 35,850 lower
352,800 349,350 -3,450 lower
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