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. 1.8,100 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $4.86, direct labor $4.40, indirect labor $0.48, utilities $0.38. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Direct Allocated Depreciation $2,000 $940 Property taxes 550 450 Insurance 960 620 $3,510 $2,010 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 for 8,100 CISCO units from a supplier is $82,656. 5. If CISCO units are purchased, freight and inspection costs would be $0.36 per unit, and receiving costs totaling $1,260 per year would be incurred by the Machining Department. (a) Prepare an incremental analysis for CISCO. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make CISCO Buy CISCO Direct materi al Senter direct material in Senter direct material in Senter direct material in dollars dollars dollars enter direct labor in Direct labor enter direct labor in enter direct labor in dollars) dollars dollars Indire enter indirect labor in enter indirect labor in ct dollars) enter indirect labor in dollars labor dollars Utilitie enter utilities in dollars enter utilities in dollars enter utilities in dollars S enter depreciation in Depre ciation enter depreciation in enter depreciation in dollars dollars dollars! enter property taxes in enter property taxes in Prope rty taxes dollars enter property taxes in dollars dollard Insura enter insurance in dollars enter insurance in dollars enter insurance in dollars nce Purch enter the purchase price enter the purchase price ase enter the purchase price in dollars price in dollars in dollars Freigh t and inspec tion enter freight and inspection in dollars enter freight and inspection in dollars enter freight and inspection in dollars Receiv enter receiving costs in enter receiving costs in enter receiving costs in ing costs dollars dollars dollars Senter total annual cost Senter total annual cost Total annua I cost Senter total annual cost in dollars in dollars in dollars (b) Based on your analysis, what decision should management make? The company should select between make and buy (c) Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO? select between Yes and No
