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 10,300 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).) Make Buy Net Income Increase (Decrease) Variable manufacturing costs $ $ $ Fixed manufacturing costs Purchase price Total annual cost $ $ $ The decision should be to the part.

Answer 1

Manson will incur a loss of $10,300 by buying the part.

Step-by-step explanation:

Purchases = 10,300 * $6 = $61,800

Variable cost = 10,300 * $5 = $51,500

Fixed cost = 10,300 * $3 = $30,900

Analysis:

Details Make ($) Buy ($) Net ($)

Purchase 0 61,800 61,800

Variable 51,500 0 51,500

Fixed 30,900 30,900 0

Loss 10,300

Therefore, Manson will incur a loss of $10,300 by buying the part.