Question

railblazers has offered to sell the assembly to Mobility for $157 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 $39,850. 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.)

Answer 1

It should accept as it saves 95,650 dollars which is higher than the minimum of 20,000

Missing infomation

Direct materials 50

Direct Labor 106

Variable overhead 32

Fixed overhead 94

Total cost 282

Step-by-step explanation:

`\left[\begin{array}{cccc}&$make&$buy&Differential\\Purchase&&-282,600&-282,600\\$Variable cost&-338,400&&338,400\\$Allocate Cost&-169,200&-129,350&39,850\\$Total Cost&-507,600&-411,950&95,650\\Net&-507,600&-411,950&95,650\\\end{array}\right]`

The variable cost wil lbe direct labor, materials and variable overhead

those cost are eliminated if choose to purchase.

We add 50 + 106 + 32 = 188 cost per unit

we multiply by the 1,800 units and get 338,400 variable cost

The allocate cost will only decrease by the 39,850 we can trace and eliminate if we chose to purchase. The rest are allocated cost that will increase the cost of other department or products.

we multiply the 94 fixed cost times 1,800 units and then subtract the 39,850 cost saved to ge the 129,350 cost that are unavoidable.

We compare the net result and get the differencial is favorable to the purchase option.