Question

Problem 7.35A - The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it man outside supplies. The part, called WISCO, isa 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. The machining department produced 7,800 units of WISCO during the year 2. Variable manufacturing costs applicable to the production of each WISCO were direct materials 55.00, director $4.60, indirect labour $0.45, and its $0.33. 3. Fixed manufacturing costs applicable to the production of WISCO were as follows: Cost Item Depreciation Property taxes Direct $1,990 530 Allocated 865 180 Insurance 910 $3,430 585 $1,630 The company will eliminate all variable manufacturing and directed costs if it purchases WISCO. Allocated costs will have to be absorbed by other production departments 4. The lowest quotation for 7,800 WISCO units from a supplier is $82,600 5. IF WISCO units are purchased, freight and inspection costs would be $0.43 per unit, and the machining department would incur receving costs total 51 275 per ve Prepare an incremental analysis for WISCO (If an amount reduces the net income then enter with a negative sin preceding the number (15,000).) -15.000 or parenthesse. Make Wisco Buy Wisco Net Income Increase (Decrease

Answer 1

Incremental Analysis:-

	Make Wisco	Buy Wisco	Net Income Increase (Decrease)
Direct Materials	(7800 * $5) =$39000		$39000
Direct Labor	(7800 * $4.60) =$35880		$35880
Indirect Labor	(7800 * $0.45) =$3510		$3510
Utilities	(7800 * $0.33) =$2574		$2574
Fixed costs	$3430		$3430
Purchase price		$82600	($82600)
Freight Cost		(7800 * $0.43) =$3354	($3354)
Receiving cost		$1275	($1275)
Total annual cost	$84394	$87229	($2835)

The company should MAKE Wisco

Incremental Analysis:-

Buy. Net Income will be Increase by $665

	Make Wisco	Buy Wisco	Net Income Increase (Decrease)
Total annual cost	$84394	$87229	($2835)
Opportunity cost	$3500		$3500
Total cost	$87894	$87229	$665