Question

Manson Industries incurs unit costs of $8 ($5 variable and $3 fixed) in making an assembly part for its finished product. A supplier offers to make 10,000 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).)

Answer 1

Answer: Particulars Make Buy Net Income Increase

or (Decrease)

Variable

Manufacturing

Cost (10,000 × $5) $50,000 $50,000

Fixed

Manufacturing

Cost (10,000 × $3) $30,000 $30,000 No effect

Purchase Price

(10,000 × $6) -$60,000 -$60,000

Total Annual Cost $80,000 $90,000 -$10,000

Should make it.

Step-by-step explanation:

10,000 × $3

10,000 × $6

Answer 2

The preparation is shown below:

Step-by-step explanation:

The preparation is presented below

Particulars Make Buy Net Income Increase

or (Decrease)

Variable

Manufacturing

Cost (10,000 × $5) $50,000 $50,000

Fixed

Manufacturing

Cost (10,000 × $3) $30,000 $30,000 No effect

Purchase Price

(10,000 × $6) - $60,000 -$60,000

Total Annual Cost $80,000 $90,000 -$10,000

As we can see that the total annual cost is less in make decision as compared to buy decision so the Manson should make the part