Question 2 (35%) Make Buy the Part the Part Incremental Analysis A) Central Company normally produces and sells 4,000 video monitors for personal computers each month. Variable manufacturing costs amount to $62 per unit, and fixed manufacturing costs are $170,000 per month. The regular sales price of the monitors is $140 per unit. The company is considering a special order from a foreign computer maker to buy an additional 1.000 monitors per month at a special price of $70 per unit. Filling this special order would not affect Central Company's regular sales volume or fixed manufacturing costs. Manufacturing costs: Direct materials Purchase price ($15 per unit) Totals (15 marks) C) Woodmont Enterprises produces two lines of mobile homes: double-wide and single-wide. Unit cost and revenue data pertaining to each product are shown below: (al) Calculate the average cost per unit at the 4,000-unit-per-month production level. (2 marks) (a2) Calculate the average cost per unit at the 5,000-unit-per-month production level. (2 marks) Selling price...... Total variable costs Double-wide $70,000 45,000 Single-wide $40,000 20,000 (a3) Calculate the amount of increase or decrease (indicate the correct term) in Central Company's operating income that would result from accepting the special order. (6 marks) Each double-wide home requires 450 different labor hours and 225 machine hours. Each single-wide home requires 250 direct labor hours and 175 machine hours. Demand for each line of homes far exceeds the company's total production capacity. B) Best Bikes, Inc., uses 10,000 derailleurs in its bicycles each year. Derailleurs currently cost the company $19 per unit to manufacture, determined as follows: (cl) If Woodmont's production capacity is constrained by limited direct labor hours, which line of homes should it produce? Show calculation to support your decision. (5 marks) (marks will not be given without numerical / calculation support) Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total costs Cost per unit ($190,000/10,000 units) $ 46,000 50,000 34,000 60,000 $190.000 (c2) If Woodmont's total production capacity is constrained by machine hours, which line of homes should it produce? Show calculation to support your decision. (5 marks) (marks will not be given without numerical / calculation support) 19 Best Bikes, Inc., has been approached by an outside supplier that will provide derailleurs at a price of $15 per unit. If Best Bikes, Inc., stops producing derailleurs, the direct materials, direct labor, and variable manufacturing overhead will be eliminated, as will $25,000 of the fixed manufacturing overhead. Use incremental analysis to determine whether Best Bikes, Inc., should make or buy derailleurs. Complete the following schedule, and explain your decision to making, or to buy the part: (marks will not be given without numerical / calculation support)
