Question

Manson Industries incurs unit costs of $7 ($4 variable and $3 fixed) in making an assembly part for its finished product. A supplier offers to make 16,400 of the assembly part at $6 per unit. If the offer is accepted, Manson will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Manson will realize by buying the part. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Make		Buy		Net Income Increase (Decrease)
Variable manufacturing costs		$		$		$
Fixed manufacturing costs		$		$		$
Purchase price		$		$		$
total annual cost		$		$		$

The decision should be to

make or buy the part?

Answer 1

Particulars	Make	Buy	Net income Inc (dec)
Variable Manf costs	$      65,600.00	$                   -	$    65,600.00
Fixed Manf costs	$      49,200.00	$    49,200.00	$                   -
Purchase price	$                     -	$    98,400.00	$   (98,400.00)
Total annual cost	$    114,800.00	$ 147,600.00	$   (32,800.00)

Make the part.