Question

The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a 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. 8.100 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.37, direct labor $4.05, indirect labor $0.41, utilities $0.37. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Direct Allocated Depreciation $2,000 $930 Property taxes Insurance 500 900 $3,400 400 590 $1,920 All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will not be eliminated if CISCO is purchased. So if CISCO is purchased, the fixed manufacturing costs allocated to CISCO will have to be absorbed by other production departments. 4. The lowest quotation for 8,100 CISCO units from a supplier is $83,295. 5. If CISCO units are purchased, freight and inspection costs would be $0.35 per unit, and receiving costs totaling $1,270 per year would be incurred by the Machining Department. (a) Prepare an incremental analysis for CISCO. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Buy CISCO Make CISCO 13197 Direct material -13197 Direct labor 32805 32805 Indirect labor 3321 i -3321 Utilities 2997 i -2997 Depreciation 2000 930 i - 1070 Property taxes 500 400 i -100 Insurance 590 i 310 Purchase price 83295 i 83295 Freight and inspection 2835 Receiving costs 0 2835 1270 89320 i i i 1270 Total annual cost 86020 $ 3300 (b) Based on your analysis, what decision should management make? The company should make CISCO . (c) Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO? Yes

how do i do the rest of this , whos know the answers?

Answer 1

Solution a:

Incremental Analysis - Shatner Manufacturing Company
Particulars	Make CISCO	Buy CISCO	Net Income Increase (Decrease)
Direct material	$43,497.00		$43,497.00
Direct labor	$32,805.00		$32,805.00
Indirect labor	$3,321.00		$3,321.00
Utilities	$2,997.00		$2,997.00
Depreciation	$2,930.00	$930.00	$2,000.00
Property taxes	$900.00	$400.00	$500.00
Insurance	$1,490.00	$590.00	$900.00
Purchase price		$83,295.00	-$83,295.00
Frieght and inspection		$2,835.00	-$2,835.00
Receiving costs		$1,270.00	-$1,270.00
Total annual costs	$87,940.00	$89,320.00	-$1,380.00

Solution b:
The company should make CISCO

solution c:

Yes, In this situation company should buy CISCO because company will save extra = $3,000 - $1,380 = $1,620