Mobility Partners makes wheelchairs and other assistive devices. For years it ha

Question

Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel assembly for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc. offered to sell these rear wheel assemblies to Mobility. If Mobility makes the assembly, its cost per rear wheel assembly is as follows (based on annual production of 2,000 units): Direct materials Direct labor Variable overhead s 30 51 19 Fixed overhead Total $144 Trailblazers has offered to ell the assembly to Mobility for $110 each. The total order would amount to 2,000 rear wheel assemblies per year, which Mobility's management will buy instead of make if Mobility can save at least $20,000 per yoar. Accepting Trailblazers's offer would eliminate annual fixed overhead of $41,800 Required: a. Prepare a schedule that shows the total differential costs. (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" If there is no effect) Trailblazers' ofMer Materials Labor Variable overhead Fixed overhead applied Total oosts b. Should Mobility make rear wheel assemblies or buy them from Trailblazers? Buy Make

Explanation / Answer

a Status Quo Alternative Difference Trailblazers offer 220000 220000 higher Materials 60000 60000 lower Labor 102000 102000 lower Variable overhead 38000 38000 lower Fixed overhead applied 88000 46200 41800 lower Total costs 288000 266200 21800 lower b Buy, as savings is more than $20000 Alternatively $21800 can be written with a negative sign before

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