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 18,000 monitors from an outside supplier for $211 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 18,000 monitors: Total cost of producing 18,000 monitors Unit cost Direct materials $ 2,196,000 $ 122 Direct labor 1,260,000 70 Variable factory overhead 558,000 31 Fixed manufacturing overhead 468,000 26 Fixed non-manufacturing overhead 792,000 44 $ 5,274,000 $293 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 $53,000, 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 18,000 monitors Differential cost to make: Direct materials 2,196,000 Direct labor 1,260,000 Overhead Differential income (loss) from making monitors Feedback Check My Work Enter only the differential relevant costs in the appropriate space and calculate differential 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 following information on the old machine and the new possible replacement machine. Old Machine: Original cost $440,000 Current accumulated depreciation 322,000 Estimated annual variable manufacturing costs for machine 73,350 Estimated selling price of machine 186,000 Estimated remaining useful life (in years) 6 New Machine: Purchase cost $780,600 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 Relevant Selling price of old machine Relevant Matching lives Relevant Purchase price of new machine Relevant Accumulated depreciation of old machine Irrelevant Fill in the differential analysis. Replace or Keep Decision Differential Analysis Report Cost of replacing old machine: Annual differential decrease in cost x number of years Total differential decrease in cost Proceeds from sale of present machine Cost of new machine Net differential (increase)/decrease in cost, six year total 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 in costs. The machine should be replaced only if there is cost savings