Brief Exercise 204 Manson Industries incurs unit costs of 7

Brief Exercise 20-4 Manson Industries incurs unit costs of $7 ($5 variable and $2 fixed) in making an assembly part for its finished product. A supplier offers to make 19,400 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.

Make	Buy	Net Income Increase (Decrease)
Variable manufacturing costs	$ $\"Entry$	$ $\"Entry$	$ $\"Entry$
Fixed manufacturing costs	$\"Entry$	$\"Entry$	$\"Entry$
Purchase price	$\"Entry$	$\"Entry$	$\"Entry$
Total annual cost	$ $\"Entry$	$ $\"Entry$	$ $\"Entry$

Therefore, the decision will be to \"MAKE\" the parts. (Because overall cost in making the parts is lesser than the cost in BUYing the parts.)

	Make	Buy	Net Income Increase/Decrease
Variable manufacturing costs	$97,000	0	$97,000
Fixed manufacturing costs	$38,800	$38,800	0
Purchase price	0	$1,16,400	-$1,16,400
Total annual cost	$1,35,800	$1,55,200	-$19,400

Brief Exercise 20-4 Manson Industries incurs unit costs of $7 ($5 variable and $2 fixed) in making an assembly part for its finished product. A supplier offers

Brief Exercise 204 Manson Industries incurs unit costs of 7

Solution

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