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 2,000 units):

  

Direct materials	$	29
Direct labor		55
Variable overhead		18
Fixed overhead		48
Total	$	150

   

     Trailblazers offered to sell the assembly to Mobility for $110 each. The total order would amount to 2,000 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 $40,900.

  

Required:
(a)	Prepare a schedule that shows the differential costs on the 2,000 rear wheel assemblies order. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

  

	Status Quo	Alternative	Difference
Trailblazers' offer	$	$	$	(Click to select)lowerhigher
Materials				(Click to select)lowerhigher
Labor				(Click to select)higherlower
Variable overhead				(Click to select)lowerhigher
Fixed overhead applied				(Click to select)higherlower
Total costs	$	$	$	(Click to select)higherlower

Answer 1

Mobility Partners

	Status Quo	Alternative	Difference
Trailblazer's offer(2000 x $110)	0	220000	220000	Higher
Material(2000 x $29)	58000	0	58000	Lower
Labor(2000 x $55)	110000	0	110000	Lower
Variable overhead(2000 x $18)	36000	0	36000	Lower
Fixed Overhead(2000 x $48)	96000	40900	55100	Lower
Total costs	300000	260900	39100	Lower