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 |
|
51 |
|
| Variable overhead |
|
22 |
|
| Fixed overhead |
|
50 |
|
| |
| Total |
$ |
149 |
railblazers 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 $40,200.
Required:
(a) Prepare a schedule that shows the differential costs on the 2,000 rear wheel assemblies order. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
| |
Status Quo
|
Alternative
|
Difference
|
|
Trailblazers' offer
|
$
|
$
|
$
|
(Click to select)lower higher
|
|
Materials
|
|
|
|
(Click to select)higher lower
|
|
Labor
|
|
|
|
(Click to select)higher lower
|
|
Variable overhead
|
|
|
|
(Click to select)lower higher
|
|
Fixed overhead applied
|
|
|
|
(Click to select)lower higher
|
|
|
|
|
|
|
|
Total costs
|
$
|
$
|
$
|
(Click to select)higher lower
|
(b) Should Mobility make rear wheel assemblies or buy them from Trailblazers?
(Click to select)MakeBuy
20.00 points
Exercise 4-32 Special Orders (L.O. 1, 2)
Carlsbad Enterprises has a capacity to produce 370,000 computer cases per year. The company is currently producing and selling 290,000 cases per year at a selling price of $404 per case. The cost of producing and selling one case follows:
| Variable manufacturing costs |
$ |
159 |
| Fixed manufacturing costs |
40 |
| Variable selling and administrative costs |
80 |
| Fixed selling and administrative costs |
18 |
| Total costs |
$ |
297 |
The company has received a special order for 40,000 cases at a price of $249 per case. Because it does not have to pay a sales commission on the special order, the variable selling and administrative costs would be only $48 per case. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:
| Selling price per case |
$ |
249 |
| Variable manufacturing costs |
159 |
| Fixed manufacturing costs |
40 |
| Variable selling and administrative costs |
48 |
| Fixed selling and administrative costs |
18 |
| Net loss per case |
$ |
(16) |
|
Required:
(a) Calculate the differential profit/loss if the order is accepted. (Enter your amounts in thousands of dollars. Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
| |
Status Quo
|
Alternative
|
Difference
|
|
Trailblazers' offer
|
$
|
$
|
$
|
(Click to select)lower higher
|
|
Materials
|
|
|
|
(Click to select)higher lower
|
|
Labor
|
|
|
|
(Click to select)higher lower
|
|
Variable overhead
|
|
|
|
(Click to select)lower higher
|
|
Fixed overhead applied
|
|
|
|
(Click to select)lower higher
|
|
|
|
|
|
|
|
Total costs
|
$
|
$
|
$
|
(Click to select)higher lower
|
(b) Based on the above should Carlsbad Enterprises accept the special order?