Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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, 2020.

1.8,100units of CISCO were produced in the Machining Department.

2. Variable manufacturing costs applicable to the production of each CISCO unit were:

direct materials $5.37, direct labor $4.05, indirect labor $0.41, utilities $0.37.

3. Fixed manufacturing costs applicable to the production of CISCO were:

Cost Item Direct Allocated

Depreciation $2,000 $930

Property taxes 500 400

Insurance 900 590

$3,400 $1,920

All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will not be eliminated if CISCO is purchased. So if CISCO is purchased, the fixed manufacturing costs allocated to CISCO will have to be absorbed by other production departments.

4. The lowest quotation for8,100CISCO units from a supplier is $83,295.

5. If CISCO units are purchased, freight and inspection costs would be $0.35per unit, and receiving costs totaling $1,270per year would be incurred by the Machining Department.

(a)Prepare an incremental analysis for CISCO.

b)Based on your analysis, what decision should management make?

(c)Would the decision be different if Shatner Company has the opportunity to produce $3,000of net income with the facilities currently being used to manufacture CISCO?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Best Practices

Authors: Steven M Bragg

7th Edition

1118404149, 9781118404140

More Books

Students also viewed these Accounting questions

Question

Distinguish between a priori and a posteriori knowledge.

Answered: 1 week ago