Problem 12-2 The management of Flounder Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company's finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2017. 1. 8,100 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $4.65, direct labor $4.46, indirect labor $0.45, utilities $0.38. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Depreciation Property taxes Insurance Direct $2,000 480 860 $3,340 Allocated $870 350 630 $1,850 All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments. 4. The lowest quotation for 8,100 CISCO units from a supplier is $80,707. 5. If CISCO units are purchased, freight and inspection costs would be $0.37 per unit, and receiving costs totaling $1,310 per year would be incurred by the Machining Department. Your answer is partially correct. Try again. Prepare an incremental analysis for CISCO. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make CISCO Buy CISCO Direct material 37,665 37,665 Direct labor 36,126 36,126 Indirect labor 3,645 3,645 Utilities 3,078 1 3 ,078 Depreciation 2,000 2,000 GIUITICEUTCUT Property taxes 480 480 Insurance 860 860 Purchase price 80707 80,707 Freight and inspection 2,997 2,997 Receiving costs 1,310 1,310 Total annual cost 83,854 85,014 1,160 Your answer is correct. Based on your analysis, what decision should management make? The company should make CISCO SHOW SOLUTION LINK TO TEXT VIDEO: SIMILAR PROBLEM Your answer is correct. Would the decision be different if Flounder Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO? Yes