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 outside supplier for $205 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 15,000 monitors:

	Total cost of producing 15,000 monitors	Unit cost
Direct materials	$	1,695,000	$	113
Direct labor		1,110,000		74
Variable factory overhead		510,000		34
Fixed manufacturing overhead		390,000		26
Fixed non-manufacturing overhead		585,000		39
	$	4,290,000	$	286

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 Zee-Drive 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 avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $43,400, 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		$fill in the blank ff0fa7f45fbaf8b_3
Differential cost to make:
Direct materials	$fill in the blank ff0fa7f45fbaf8b_4
Direct labor	fill in the blank ff0fa7f45fbaf8b_5
Overhead	fill in the blank ff0fa7f45fbaf8b_6	fill in the blank ff0fa7f45fbaf8b_7
Differential income (loss) from making monitors		$fill in the blank ff0fa7f45fbaf8b_8

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Enter only the differential relevant costs in the appropriate space and calculate differential income or loss. The challenge is in determining differential overhead.

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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 following information on the old machine and the new possible replacement machine.

Old Machine:
Original cost	$425,100
Current accumulated depreciation	325,800
Estimated annual variable manufacturing costs for machine	71,750
Estimated selling price of machine	189,400
Estimated remaining useful life (in years)	6
New Machine:
Purchase cost	$807,300
Estimated annual variable manufacturing costs for machine	47,100
Estimated residual value	0
Estimated useful life (in years)	6

Select the relevant or irrelevant information below:

Annual variable costs of old machine	RelevantIrrelevant
Selling price of old machine	RelevantIrrelevant
Matching lives	RelevantIrrelevant
Purchase price of new machine	RelevantIrrelevant
Accumulated depreciation of old machine	RelevantIrrelevant

Fill in the differential analysis.

Replace or Keep Decision Differential Analysis Report
Cost of replacing old machine:
Annual differential decrease in cost	$fill in the blank 6d2a8c05c044f80_6
x number of years	fill in the blank 6d2a8c05c044f80_7
Total differential decrease in cost	fill in the blank 6d2a8c05c044f80_8
Proceeds from sale of present machine	fill in the blank 6d2a8c05c044f80_9	$fill in the blank 6d2a8c05c044f80_10
Cost of new machine		fill in the blank 6d2a8c05c044f80_11
Net differential (increase)/decrease in cost, six year total		$fill in the blank 6d2a8c05c044f80_12