Caballero Manufacturing incurs unit costs of $15 ($10 variable and $5 fixed) in

Question

Caballero Manufacturing incurs unit costs of $15 ($10 variable and $5 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 20,000 of the assembly part at $13.75 per unit. If the offer is accepted, Caballero will save all variable costs but no fixed costs.

Instructions: Part A) Prepare an analysis showing the total cost savings, if any, Caballero will

realize by buying the part.

Part B) Caballero Company should _________ the part because total annual costs to make are _________ than total costs to buy.

Part A)

RETAIN

EQUIPMENT

REPLACE   EQUIPMENT

  

     

RETAIN

  

EQUIPMENT

     

REPLACE   EQUIPMENT

     

     

     

     

     

     

     

     

     

     

     

     

   Caballero Manufacturing incurs unit costs of $15 ($10 variable and $5 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 20,000 of the assembly part at $13.75 per unit. If the offer is accepted, Caballero will save all variable costs but no fixed costs. Prepare an analysis showing the total cost savings, if any, Caballero will realize by buying the part. Caballero Company should the part because total annual costs to make are than dtotal costs to buy

Explanation / Answer

RETAIN EQUIPMENT

VARIABLE COST [10*20000] = 200000

ADD:-FIXED COST [20000*5] = 100000

TOTAL COST = 300000

REPLACE EQUIPMENT

VARIABLE COST[20000*13.75] =275000

ADD;FIXED COST = 200000

TOTAL COST = 475000

Caballero Company should ______RETAIN__ the part because total annual costs to make are 175000 LESS_____ than total costs to buy.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---