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Problem 7.35A a-c The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an
Problem 7.35A a-c The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called WISCO, 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, 2020: 1. The machining department produced 8,000 units of WISCO during the year. 2. Variable manufacturing costs applicable to the production of each WISCO unit were direct materials $4.80, direct labour $4.00, indirect labour $0.43, and utilities $0.33. 3. Fixed manufacturing costs applicable to the production of WISCO were as follows: Cost Item Depreciation Property taxes Insurance Direct $1,910 545 960 $3,415 Allocated $895 115 585 $1,595 The company will eliminate all variable manufacturing and direct fixed costs if it purchases WISCO. Allocated costs will have to be absorbed by other production departments. 4. The lowest quotation for 8,000 WISCO units from a supplier is $76,400. 5. If WISCO units are purchased, freight and inspection costs would be $0.43 per unit, and the machining department would incur receiving costs totalling $1,265 per year. Prepare an incremental analysis for WISCO. (If an amount reduces the net income then enter with a negative sign preceding the number, e.g.-15,000 or parenthesis, e.g. (15,000).) Make Wisco Buy Wisco Net Income Increase (Decrease) Total annual cost Based on your analysis, what decision should management make? The company should WISCO. Would the decision be different if Borealis had the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture WISCO? (If an amount reduces the net income then enter with a negative sign preceding the number, e.g.-15,000 or parenthesis, e.g. (15,000).) 9. Net income will be by $ Make Wisco Buy Wisco Net Income Increase (Decrease) Total annual costs Opportunity cost Total cost
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