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):

Direct materials	$	32
Direct labor		105
Variable overhead		17
Fixed overhead		41
Total	$	195

Trailblazers has offered to sell the assembly to Mobility for $166 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 $36,250.

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.)

	status quo	alternative	difference	higher or lower
trailblazers' offer
materials
labor
variable overhead
fixed overhead applied
total costs

b. Should Mobility make rear wheel assemblies or buy them from Trailblazers?

• Make

• Buy

Answer 1

a
	Status Quo	Alternative	Difference
Trailblazers’ offer		298800	298800	higher
Materials	57600		57600	lower
Labor	189000		189000	lower
Variable overhead	30600		30600	lower
Fixed overhead applied	73800	37550	36250	lower
Total costs	351000	336350	14650	lower
b
Make, as savings is less than $20000
Workings:
	Status Quo	Alternative
Trailblazers’ offer		=1800*166
Materials	=1800*32
Labor	=1800*105
Variable overhead	=1800*17
Fixed overhead applied	=1800*41	=73800-36250