7-2 (Part Level Submission)

The management of Marigold 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, 2017.

1. 7,900 units of CISCO were produced in the Machining Department.

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

direct materials $5.11, direct labor $4.48, indirect labor $0.48, utilities $0.39.

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

The following information was collected from the accounting records and production data for the year ending December 31, 2017. 1. 7,900 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.11, direct labor $4.48, indirect labor $0.48, utilities $0.39. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Direct Allocated Depreciation $2,000 $900 Property taxes Insurance 940 560 $3,480 $1,790 540 330 All variable manufacturing and direct xed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments. 4. The lowest quotation for 7,900 CISCO units from a supplier is $83,151. 5. If CISCO units are purchased, freight and inspection costs would be $0.37 per unit, and receiving costs totaling $1,280 per year would be incurred by the Machining Department. Direct material Direct labor Indirect labor Utilities Depreciation Property taxes Insurance Purchase price Freight and inspection Receiving costs Total annual cost Make CISCO lla lla Net Income Increase Buy CISCO (Decrease) #1- #1- UUUUUUUUUUH