Brief Exercise 20-04 Manson Industries incurs unit costs of $8 ($5 variable and $3 fixed) in making an assembly part for its finished product. A supplier offers to make 10,400 of the assembly part at $6 per unit. If the offer is accepted, Manson will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, Manson will realize by buying the part. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45)). Variable manufacturing costs Fixed manufacturing costs Purchase price Total annual cost Make Buy Net Income Increase (Decrease) The decision should be to the part.
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First, let's calculate the total cost of making the assembly part in-house: - Variable cost per unit: $5 - Fixed cost per unit: $3 - Total cost per unit: $5 + $3 = $8 Show more…
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