23-4

Vintech Manufacturing incurs unit costs of $6 ($5 variable and $1 fixed) in making a subassembly part for its finished product. A supplier offers to make 17,300 of the part at $6.10 per unit. If the offer is accepted, Vintech will save all variable costs but no fixed costs.

Prepare an analysis showing the total cost saving, if any, Vintech will realize by buying the part.

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

23-6

Ridley Company has a factory machine with a book value of $87,400 and a remaining useful life of 5 years. A new machine is available at a cost of $203,700. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $574,100 to $377,100.

Prepare an analysis showing whether the old machine should be retained or replaced.

		Retain Equipment		Replace Equipment		Net 5-Year Income Increase (Decrease)
Variable manufacturing costs		$		$		$
New machine cost
Total		$		$		$