Make or Buy Decision: Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 15,000 monitors from an out5icle supplier for 5201 per unit. One of the company's costiaccounting Interns prepared the followmg schedule of ZEEFDI'IVE'S cost to produce 15,000 monitors: Total cost of producing 15,000 monitors Unit cost Direct materials 5 1,680,000 $ 112 Direct labor 1,035,000 69 Variable factory overhead 465,000 31 Fixed manufacturing overhead 450,000 30 Fixed nonrmanufacturing overhead 585,000 39 54,215,000 $281 You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If ZeeiDrive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are av0idable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $59,100, but non-manufacturing costs would remain the same if monitors are bought. Fill in the differential analysis. Make or Buy Decisions Differential Analysis Report Purchase price of 15,000 monitors $[:] Differential cost to make: Direct materials $:] Overhead :l :l Differential income (loss) from making monitors $:] Feedback ) ' Check My Work Enter only the differential relevant costs in the appropriate space and calculate ditferential income or loss. The challenge is in determining differential overhead Keep or Replace Machine: Skiles Coporation is a manufacturer of classic rocking chairs. The company has been using a particular sanding and finishing machine for over 10 years and believes that it may be time to replace the machine. The company is trying to decide whether replacing the old machine IS a wise economic decision. The company's controller pulled together the followmg information on the old machine and the new possible replacement machine. Old Machine: Original cost $420,800 Current accumulated depreciation 329,500 Old Machine: Original cost $420,800 Current accumulated depreciation 329,600 Estimated annual variable manufacturing costs for machine 74,850 Estimated selling price of machine 164,300 Estimated remaining useful life (in years) 6 New Machine: Purchase cost $804,500 Estimated annual variable manufacturing costs for machine 45,500 Estimated residual value 0 Estimated useful life (in years) 6 Select the relevant or irrelevant information below: Annual variable costs of old machine Relevant Selling price of old machine Relevant Matching lives Relevant Purchase price of new machine Relevant Accumulated depreciation of old machine IrrelevantFill in the differential analy5is. Replace or Keep Decision Differential Analysis Report Cost of replacing old machine: Annual differential decrease in cost $l:l x number of years [:l Total differential decrease in cost :] Proceeds from sale of present machine :] $:] Cost of new machine :] Net differential (increase)/decrease in cost, six year total 35:] Feedback " Check My Work Multiply the annual differential decrease in costs attributable to the new machine by six years to determine the total differential decrease in cost, Then add the proceeds from the sale of old machine The cost of the new machine is the purchase cost. The difference is either an increase or decrease "1 costs. The machine should be replaced only if there is cost savings. Feedback ' Check My Work Partially correct