Question

Case1: Incremental Analysis:

you are a financial manager for Zoom Corp., which manufactures bicycles. In the most recent fiscal year,

8 >> 10 >> 11 12 13 14 7 Instructions Enter your name and Access ID ('aa1234' format) in the cells above. The data required for this case 9 will not appear until you do so. You are a financial manager for Zoom Corp., which manufactures bicycles. In the most recent fiscal year, Zoom manufactured and sold 20,000 bicycles. Wheels, seats, and brake calipers are three components of the bicycles currently manufactured by Zoom. Three different vendors have proposed to provide those components to Zoom, and quoted prices (including shipping) for their delivery. Your task is to determine which, if any, of these proposals should be accepted. Prepare a make vs. buy incremental analysis for each possible course of action in an Excel worksheet. Your grade will be based on the correctness of your answers, as well as the use of Excel. That is, where possible, you should use formulas to get your answers, rather than keyed-in values. See your instructor for help with Excel basics if you need it. 19 >> In a Word document, prepare a memo stating which of the proposals you suggest accepting, as well as the basis for your conclusions. Also identify any nonfinancial factors you should consider before accepting any of the outsourcing proposals. Attach both files to the Canvas assignment space by the due date of March 18th 15 >> 16 17 18 20 21 22 >> 23 24 25 26 27 28 Below is cost data for Zoom's production of wheels, seats, and calipers. Outside suppliers have offered to provide wheels for $6.95, seats for $7.84, and calipers for $2.55 per piece. Both wheels and seats are branded with the Zoom logo, and that logo will need to be added at the Zoom factory at a cost of $0.50 each for any of these components that are outsourced. For all three components, 75% of the fixed costs are avoidable, and will be eliminated if the component's production is outsourced. In addition, seats and calipers are both produced out of the same small factory space. If both seats and calipers were outsourced, Zoom could lease the space out and increase net income by $6,000 per year, while eliminating all fixed costs for the two components. 29 30 31 32 33

Answer 1

1.Make vs buy wheels

statement of incremental analysis for wheel

particulars	make wheel $	buy wheel $	net income[increase/[decrease]]
direct material	142000		142000
direct labour	93000		93000
variable overhead	21000		21000
fixed overhead	59800	14950[59800-75%]	44850
buying cost [40000*6.95]		278000	[278000]
logo cost[40000*0.5]		20000	[20000]
total cost	315800	312950	2850
cost per component	7.895	7.824

Comment:

As there is increase pof $2850 in net income,it is advisable to buy wheel component.

2.make vs buy seat

statement of incremental analysis for seat

particulars	make seat $	buy seat $	net income[increase/[decrease]]
direct material	56000		56000
direct labour	70000		70000
variable overhead	14000		14000
fixed overhead	41400	10350[41400-75%]	31050
buying cost [20000*7.84]		156800	[156800]
logo cost[20000*0.5]		10000	[10000]
total cost	181400	177150	4250
cost per component	9.07[181400/20000]	8.86[177150/20000]

Comment:

seat component may be bought from outside as there is incremental revenue of $4250.

3.make vs buy capilars

statement of incremental analysis for capilars

particulars	make capilars $	buy capilars $	net income[increase/[decrease]]
direct material	90000		90000
direct labour	42000		42000
variable overhead	16000		16000
fixed overhead	33200	8300[33200-75%]	24900
buying cost [20000*7.84]		204000	[204000]
total cost	181200	212300	[31100]
cost per component	2.265[181200/80000]	2.65[212300/80000]

Comment:

it is not advisable to all to buy capilars from outside as there is huge loss of revenue.

4.

statement of incremental analysis for both seats & capilars

particulars	make seats & capilars $ [2+3]	buy seats & capilars $	net income[increase/[decrease]]
direct material	146000		146000
direct labour	112000		112000
variable overhead	30000		30000
fixed overhead	74600		74600
buying cost		360800	[360800]
logo cost		10000	[10000]
lease revenue			6000
total cost	362600	370800	[2200]

Comment:

Not advisable to buy both components from outside.

5. Non-financial factors to consider in make vs buy decisions

*supplier reliability

*quality factors

*labour issues

*demand and supply management.