Mobility Partners makes wheelchairs and other assistive devices. For years it ha
ID: 2493211 • Letter: M
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 $ 26 Direct labor 53 Variable overhead 17 Fixed overhead 49 Total $ 145 Trailblazers offered to sell 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 year. Accepting Trailblazers's offer would eliminate annual fixed overhead of $40,300. Required: a. Prepare a schedule that shows the differential costs on the 2,000 rear wheel assemblies order. b. Should Mobility make rear wheel assemblies or buy them from Trailblazers? Make BuyExplanation / Answer
Make
Buy
Differential analysis
Direct materials
52,000
52,000
Direct labor
106,000
106,000
Variable overhead
34,000
34,000
Fixed overhead
98,000
57,700
40,300
Buy @110
---
220,000
(220,000)
Total cost
290,000
277,700
12,300
No should not accept the offer since savings is less than 20,000
Hence should make
Make
Buy
Differential analysis
Direct materials
52,000
52,000
Direct labor
106,000
106,000
Variable overhead
34,000
34,000
Fixed overhead
98,000
57,700
40,300
Buy @110
---
220,000
(220,000)
Total cost
290,000
277,700
12,300