Problem 20-2A Your answer is partially correct. Try again. The management of Shatner 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. 8,000 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.00, direct labor $4.35, indirect labor $0.40, utilities $0.39. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Depreciation Property taxes Insurance Direct $1,900 560 950 $3,410 Allocated $930 290 590 $1,810 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 8,000 CISCO units from a supplier is $81,590. 5. If CISCO units are purchased, freight and inspection costs would be $0.34 per unit, and receiving costs totaling $1,290 per year would be incurred by the Machining Department. (a) Prepare an incremental analysis for CISCO. (Enter negative amounts 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 40,000 J 40000 Direct labor 34800 T 34800 LOTTAI Indirect labor 3200 T 3200 Utilities 3120 3120 Depreciation 930 930 Depreciation 930 930 Property taxes 290 290 Insurance 590 Purchase price HOLUL DAHILOO 81590 -81590 Freight and inspection 2720 -2720 Receiving costs 1290 -1290 Total annual cost 82930 85600 (b) Based on your analysis, what decision should management make? The company should make CISCO (c) Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO? Yes