Question 11

Emil Manufacturing incurs unit costs of $8.10 ($5.10 variable and $3.00 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 19,800 of the parts for $5.70 per unit. If it accepts the offer, Emil will save all variable costs and $1 of fixed costs. Prepare an analysis showing the total cost savings, if any, that Emil will realize by buying the part. (Round per unit answers to 2 decimal places, e.g. 15.25. 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).)

				Per Unit		Make		Buy		Net Income Increase (Decrease)
Number of units:
Purchase priceFixed manufacturing costsTotal annual costCost of good soldManufacturing overheadVariable manufacturing costs				$		$		$		$
Total annual costPurchase priceCost of good soldFixed manufacturing costsManufacturing overheadVariable manufacturing costs
Manufacturing overheadPurchase priceTotal annual costCost of good soldVariable manufacturing costsFixed manufacturing costs
Cost of good sold Total annual cost Purchase price Fixed manufacturing costs Manufacturing overhead Variable manufacturing costs						$		$		$

The decision should be to

buy the partmake the part

.