Question

Bridgeport Manufacturing incurs unit costs of $8.00($5.00 variable and $3.00 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 17,800 of the parts for $5.60 per unit. If it accepts the offer, Bridgeport will save all variable costs and $1.00 of fixed costs, Prepare an analysis showing the total cost savings, if any, that Bridgeport will realize by buying the part. (Round per unit onswers to 2 decimal places, eg. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number, eg −15,000 or parenthesis, eg. (15,000))

Answer 1

Bridgeport Manufacturing would realize a total cost savings of $60,520 by purchasing the sub-assembly parts from a supplier rather than making them in-house.

Step-by-step explanation:

The task is to calculate the total cost savings Bridgeport Manufacturing would realize by buying a sub-assembly part from a supplier rather than making it in-house. The in-house unit cost is $8.00, which includes $5.00 in variable costs and $3.00 in fixed costs. If the parts are purchased from the supplier at $5.60 per unit for 17,800 units, Bridgeport saves all variable costs and an additional $1.00 in fixed costs per unit.

To compute the savings, first calculate the cost of making the parts in-house: 17,800 units × $8.00/unit = $142,400. The cost to purchase from the supplier is: 17,800 units × $5.60/unit = $99,680. Next, we calculate the savings on fixed costs per unit, which is $1.00, thus 17,800 units × $1.00/unit = $17,800 saved in fixed costs.

Now, subtract the cost of purchasing from the cost of making the parts in-house and add the fixed cost savings: ($142,400 - $99,680) + $17,800 = $60,520 in total savings.

The total cost savings that Bridgeport will realize by buying the part is $60,520.