Mobility Partners makes wheelchairs and other assistive devices. For years it ha
ID: 2583424 • 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 has 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 $39,500.
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.)
b. Should Mobility make rear wheel assemblies or buy them from Trailblazers?
Direct materials $ 26 Direct labor 55 Variable overhead 20 Fixed overhead 49 Total $ 150Explanation / Answer
a
Prepare a schedule that shows differential costs
Status Quo
Alternative
Difference
Traiblzaers offer
220000
220000
(2000*$110)
Materials
25
50000
50000
Labor
55
110000
110000
Variable overhead
20
40000
40000
Fixed Overhead Applied
49
98000
98000
Total costs
298000
220000
78000
b
Should Mobility make rear wheel assemblies or buy them from trailblazers
BUY
a
Prepare a schedule that shows differential costs
Status Quo
Alternative
Difference
Traiblzaers offer
220000
220000
(2000*$110)
Materials
25
50000
50000
Labor
55
110000
110000
Variable overhead
20
40000
40000
Fixed Overhead Applied
49
98000
98000
Total costs
298000
220000
78000
b
Should Mobility make rear wheel assemblies or buy them from trailblazers
BUY