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 $5.10, direct labor $4.89,
indirect labor $0.42, utilities $0.35.
3. Fixed manufacturing costs applicable to the production of CISCO
were:
Cost Item | Direct | Allocated | ||||
---|---|---|---|---|---|---|
Depreciation | $1,900 | $930 | ||||
Property taxes | 470 | 400 | ||||
Insurance | 900 | 640 | ||||
$3,270 | $1,970 |
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
$87,328.
5. If CISCO units are purchased, freight and inspection costs would
be $0.38 per unit, and receiving costs totaling $1,290 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).)
Make CISCO | Buy CISCO | Net Income Increase (Decrease) |
|||||
---|---|---|---|---|---|---|---|
Direct material | |||||||
Direct labor | |||||||
Indirect labor | |||||||
Utilities | |||||||
Depreciation | |||||||
Property taxes | |||||||
Insurance | |||||||
Purchase price | |||||||
Freight and inspection | |||||||
Receiving costs | |||||||
Total annual cost |
(b) Based on your analysis, what decision should
management make?
The company should select between make and buy: A. make CISCO B. buy 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?
select between:
A. Yes
B. No
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Part a | |||||
Make CISCO | Buy CISCO | Net Income | |||
Increase | |||||
For 8,100 units | (Decrease) | ||||
Direct material | 8,100*$5.10 | $ 41,310 | $ - | $ 41,310 | |
Direct labor | 8,100*$4.89 | $ 39,609 | $ - | $ 39,609 | |
Indirect labor | 8,100*$0.42 | $ 3,402 | $ - | $ 3,402 | |
Utilities | 8,100*$0.35 | $ 2,835 | $ - | $ 2,835 | |
Depreciation | $ 2,830 | $ 930 | $ 1,900 | ||
Property taxes | $ 870 | $ 400 | $ 470 | ||
Insurance | $ 1,540 | $ 640 | $ 900 | ||
Purchase price | $ - | $ 87,328 | $ -87,328 | ||
Freight and inspection | 8,100*$0.38 | $ 3,078 | $ -3,078 | ||
Receiving costs | $ 1,290 | $ -1,290 | |||
Total annual cost | $ 92,396 | $ 93,666 | $ -1,270 | ||
Part b | |||||
A. Make CISCO since cost is lower by $1,270 | |||||
Part c | |||||
A Yes | |||||
Loss in buying CISCO | $ -1,270 | ||||
Additional income (Opportunity) | $ 3,000 | ||||
Net Advantage | $ 1,730 | ||||
The management of Shatner Manufacturing Company is trying to decide whether to continue manufactu...
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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 co The following information was collected from the accounting records and production data for the year ending December 31, 2020. 1.7,900 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.11, direct labor $4.54, indirect...
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, 2017 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...
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. 1.7.900 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials...
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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...
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. 7,900 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct...
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The management of Shatner Manufacturing Company is trying to decide whetehr 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. 8000 units of CISCO were produced in the Machining Department 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct...
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