Cost Accounting I Application Portion of Exam #$2$

Points: $25$

Please read all of the instructions carefully before completing the exam.

Part $1$: Make or Buy Decisions

Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel assembly

for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc., offered to sell these rear wheel

assemblies to Mobility. If Mobility makes the assembly, its cost per rear wheel assembly is as follows $($based on

annual production of $2,000$ units$)$:

Direct materials $,$$$,30$

Direct labor $52$

Variable overhead $21$

Fixed overhead ${52}_{?}$

Total $

Trailblazers has offered to sell the assembly to Mobility for $$110$ each. The total order would amount to $2,000$

rear wheel assemblies per year, which Mobility's management will buy instead of make if Mobility can save at

least $$20,000$ per year. Accepting Trailblazers's offer would eliminate annual fixed overhead of $$41,100.$

Required:

a$.$ Using Excel, prepare a schedule that shows the total differential costs. Indicate if the differential cost is

higher, lower or no effect under the assumption that Status Quo is the base.

b$.$ Should Mobility make rear wheel assemblies or buy them from Trailblazers? Why? Be sure to provide a

complete justification for your decision.