Mobility Partners makes wheelchairs and other assistive devices. For years it ha
ID: 2569207 • 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):
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 $10,000 per year. Accepting Trailblazers's offer would eliminate annual fixed overhead of $40,000.
Prepare a schedule that shows the differential costs on the 2,000 rear wheel assemblies order. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit the "$" sign in your response.)
rev: 02_03_2012
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):
Explanation / Answer
Schedule showing statement of differential cost
$220000
(2000 * $110)
$50000
($25 * 2000)
Labour cost
$106000
($53 * 2000)
$32000
($16 * 2000)
$94000
($47 * 2000)
$54000
($94000 - $40000)
Working Note:-
1) Fixed ovehead applied = $47*2000 = $94000
Decision : Make
Total saving from accepting the accepting the offer of trailblazer = $8000
Cost saving required to accept the offer of trailblazer = $10000
Particulars Make the wheels Buy from trailblazers Differential cost Offer of trailblazer$220000
(2000 * $110)
$220000 Higher Material cost$50000
($25 * 2000)
$50000 LowerLabour cost
$106000
($53 * 2000)
$106000 Lower Variable overhead$32000
($16 * 2000)
$32000 Lower Fixed overhead$94000
($47 * 2000)
$54000
($94000 - $40000)
$40000 Lower Total cost $282000 $274000 ($8000) Lower