The cost to Swank Company of manufacturing 15,000 units of a particular part is $135,000, of which $60,000 is fixed and $75,000 is variable. The company can buy the part from an outside supplier for $6 per unit. Fixed costs will remain the same regardless of Swank’s decision. Should the company buy the part or continue to manufacture it? Prepare a comparative schedule in the format illustrated in Exhibit 21–6 .
Exhibit 21-6
Make the Part Buy the Part Incremental Analysis
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000 $ 8,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,500 12,500
Variable overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 $ 1,000 9,000
Fixed overhead . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 29,500 27,000 2,500
Purchase price of part, $5 per unit . . . .. . . . . . . . . . ______ 50,000 (50,000 )
Total cost to acquire part . . . . . . . . . . . . . . . . . . . . . $60,000 $78,000 $ (18,000)
Here is a start to the answer, but I am unsure because there is no reference to a decrease in variable costs.
beginning to answer: Make the Buy the Incremental
part part Analysis
Variable Overhead $75,000 Fixed Overhead 60,000 60,000 Purchase Price of part, $6 per unit 9,000 (9,000)
Total cost to acquire part $135,000