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The management of Novak Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The

The management of Novak 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 companys 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 $5.30, direct labor $4.69, indirect labor $0.45, utilities $0.44. 3. Fixed manufacturing costs applicable to the production of CISCO were:
Cost Item Direct Allocated
Depreciation $2,000 $880
Property taxes 510 410
Insurance 900 610
$3,410 $1,900
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 $87,590. 5. If CISCO units are purchased, freight and inspection costs would be $0.36 per unit, and receiving costs totaling $1,280 per year would be incurred by the Machining Department.
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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 sig Net Income Increase (Decrease) Make CISCO Buy CISCO Direct material 42400 42400 Direct labor 37520 37520 Indirect labor 3600 3600 Utilities 3520 3520 Depreciation 2000 2000 TELECOGELUGI Property taxes 510 510 Insurance 900 900 Purchase price 87590 87590 Freight and inspection 2880 -2880 = 1280 Receiving costs 1280 -1280 Total annual cost 87040 95160 -1300

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