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Situation3 (a) Prepare an incremental analysis showing whether Current Designs should make or buy the "Revolution Seating System. Direct materials Direct labor Variable mfg. costs Fixed mfg. costs Purchase price Total annual cost Make $135,000.00 $81,000.00 $101,250.00 $30,000.00 0.00 $347,250.00 Buy $0.00 0.00 $0.00 $22,500.00 $337,500.00 $360,000.00 Net Income Increase (Decrease) $135,000.00 $81,000.00 $101,250.00 $7,500.00 ($337,500.00) ($12,750.00) 8 91 0 31 Based solely on financial considerations, Current Designs should (indicate by placing an "X" in the ap appropriate cell below) Make Buy 84 85 86 87 Response: Current Design should make, because buying will increase costs Would your answer in (a) change if the productive capacity released by not making the seats could be used to produce income of $30,000? (b) Net Income Increase (Decrease) 6 7 8 9 Make Buy Total annual cost Opportunity cost Total cost 01 02Based solely on financial considerations, Current Designs should (indicate by placing an "X" in the appropriate cell below) Make Buy 03 04 05 06 07 08 Response: Situation 3 One of Current Designs' competitive advantages is found in the ingenuifty of its owners and CEO, Mike Cichanowski. His involvement in the design of kayak molds and production techniques has led to Current Designs being recognized as an industry leader in the design and production of kayaks. This ingenuity was evident in an improved design of one of the most important component of a kayak, the seat. The "Revolution Seating System" is one-of-a-kind, rotating axis seat that gives unmatched, full contact, under-leg support. It is quickly adjustable with a lever-lock system that allows for a customizable seat position that maximizes comfort for the rider. Having just designed the "Revolution Seating System", Current Designs must now decide whether to produce the seats internally or buy them from an outside supplier. The costs for Current Designs to produce the seats are as follows Direct materials Variable overhead $30/unit $22.5/unit Direct labor Fixed overhead $18/unit $30,000 6/ Current Designs will need to produce 4,500 seats this year, 25% of the fixed overhead will be avoided if the seats are 7 purchased from an outside vendor. After soliciting prices from outside suppliers, the company determined that it wil 8 cost $75 to purchase a seat from an outside vendor. 9 0 Instructions 1 (a) Prepare an incremental analysis showing whether Current Designs should make or buy the "Revolution Seating 2System." 73 (b) Would your answer in (a) change if the productive capacity released by not making the seats could be used to Aproduce income of $30,000
