Question

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):

Mobility Partners makes wheelchairs and other a local bicycle manufacturing firm, Trailblazers, Inc assembly, its cost per rear wheel assembly is as 10 points eBook Direct materials Direct labor Variable overhead Fixed overhead Total $ 30 98 14 41 $ 183 Prir References Trailblazers has offered to sell the assembly to per year, which Mobility's management will buy i offer would eliminate annual fixed overhead of Required: a. Prepare a schedule that shows the total differ Select "none" if there is no effect.)

Trailblazers has offered to sell the assembly to Mobility for $151 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 $20,000 per year. Accepting Trailblazers's offer would eliminate annual fixed overhead of $36,350.

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.)

Answer 1

Answer:

	Status Quo	Alternative	Difference
Trailblazer's Offer	0	$271,800	$271,800	Higher
Direct materials	$54,000	0	50,000	lower
Direct labor	$176,400	0	106,000	lower
Variable overhead	$25,200	0	32,000	lower
Fixed overhead Applied	$73,800	$37,450	40,000	lower
Total cost	$329,400	$309,250	$20,150	lower

Workings:

	Cost of Making	Alternative
Trailblazer's Offer	0	151 × 1800 =271,800
Direct materials	30 × 1800 = 54,000	0
Direct labor	98 × 1800 = 176,400	0
Variable overhead	14 x 1800 = 25,200	0
Fixed overhead Applied	41 x 1800 = 73,800	73,800 - 36,350

Mobility Expect to save atleast $20,000, but the savings are $20,150 so the company will buy rear wheels assemples from trailblazer rather than making them in house.