1 8 000 units of cisco were produced in the machining department 2 variable manufact 549399

Aug 29, 2021 | Uncategorized

1. 8,000 units of CISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each CISCO unit were:
direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40.
3. Fixed manufacturing costs applicable to the production of CISCO were:

Cost Item Direct Allocated
Depreciation $2,100 $900
Property taxes 500 200
Insurance 900 600
$3,500 $1,700

All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments.
4. The lowest quotation for 8,000 CISCO units from a supplier is $80,000.
5. If CISCO units are purchased, freight and inspection costs would be $0.35 per unit, and receiving costs totaling $1,300 per year would be incurred by the Machining Department.
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 CISCO Buy CISCO Net Income
Increase
(Decrease)
Direct material $ $ $
Direct labor
Indirect labor
Utilities
Depreciation
Property taxes
Insurance
Purchase price
Freight and inspection
Receiving costs
Total annual cost $ $ $

Based on your analysis, what decision should management make?

The company should continue tobuy CISCOmake CISCO.

Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO?
NoYes