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The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier

Accounting

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The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company's finished product.

 

The following information was collected from the accounting records and production data for the year ending December 31, 2020.

 

1. 8,100 units of CISCO were produced in the Machining Department.

2. Variable manufacturing costs applicable to the production of each CISCO unit were:

    direct materials $4.65, direct labor $4.46, indirect labor $0.45, utilities $0.38.

3. Fixed manufacturing costs applicable to the production of CISCO were:

 

Cost ItemDirectAllocatedDepreciation$2,000$870Property taxes480350Insurance860630$3,340$1,850

 

All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will not be eliminated if CISCO is purchased. So if CISCO is purchased, the fixed manufacturing costs allocated to CISCO will have to be absorbed by other production departments.

 

4. The lowest quotation for 8,100 CISCO units from a supplier is $80,707.

5. If CISCO units are purchased, freight and inspection costs would be $0.37 per unit, and receiving costs totaling $1,310 per year would be incurred by the Machining Department.

 

(a) Prepare an incremental analysis for CISCO. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

 

Make CISCOBuy CISCONet Income

Increase

(Decrease)Direct material$

enter direct material in dollars

 $

enter direct material in dollars

 $

enter direct material in dollars

 Direct laborenter direct labor in dollars

enter direct labor in dollars

enter direct labor in dollars

Indirect laborenter indirect labor in dollars

enter indirect labor in dollars

enter indirect labor in dollars

Utilitiesenter utilities in dollars

enter utilities in dollars

enter utilities in dollars

Depreciationenter depreciation in dollars

enter depreciation in dollars

enter depreciation in dollars

Property taxesenter property taxes in dollars

enter property taxes in dollars

enter property taxes in dollars

Insuranceenter insurance in dollars

enter insurance in dollars

enter insurance in dollars

Purchase priceenter the purchase price in dollars

enter the purchase price in dollars

enter the purchase price in dollars

Freight and inspectionenter freight and inspection in dollars

enter freight and inspection in dollars

enter freight and inspection in dollars

Receiving costsenter receiving costs in dollars

enter receiving costs in dollars

enter receiving costs in dollars

   Total annual cost$

enter total annual cost in dollars

 $

enter total annual cost in dollars

 $

enter total annual cost in dollars

 

 

 

(b) Based on your analysis, what decision should management make?