Crafty Tools manufactures an electric motor that it uses in several of its produ
ID: 2349756 • Letter: C
Question
Crafty Tools manufactures an electric motor that it uses in several of its products. Management is considering whether to continue manufacturing the motors or to buy them from an outside source. The following information is available:1. The company needs 10,000 motors per year. The motors can be purchased from an outside supplier at a cost of $20 per unit.
2. The unit cost of manufacturing the motors is $42, computed as follows:
Direct materials $96,000
Direct labor 120,000
Factory overhead:
Variable 90,000
Fixed 114,000
Total manufacturing costs $420,000
Cost per unit ($420,000
Explanation / Answer
Please post the other part in a different post and rate this one.
Incremental analysis for make or buydecision:-
Make the motor
Buy the motor
Incremental analysis
Manufacturing cost for 10000 motors:
Direct material
Direct labor
Variable factory overhead
Fixed factory overhead
Purchase price of part, @ 20
$ 96,000
120,000
90,000
114,000
0
$ 0
0
22,500
110,000
200,000
$ 96,000
120,000
67,500
4,000
(200,000)
Total cost to acquire motor
$ 420,000
$ 332,500
$ 87,500
Our analysis shows that making the part will cost $420,000,while buying the part will cost $332,500.Thus the company will save$87,500 by buying the part.
Make the motor
Buy the motor
Incremental analysis
Manufacturing cost for 10000 motors:
Direct material
Direct labor
Variable factory overhead
Fixed factory overhead
Purchase price of part, @ 20
$ 96,000
120,000
90,000
114,000
0
$ 0
0
22,500
110,000
200,000
$ 96,000
120,000
67,500
4,000
(200,000)
Total cost to acquire motor
$ 420,000
$ 332,500
$ 87,500