Brief Exercise 20-4

Manson Industries incurs unit costs of $8 ($5 variable and $3 fixed) in making an assembly part for its finished product. A supplier offers to make 11,500 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. (45).)

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

The decision should be to makebuythe part.