QuestionSunland Industries incurs unit costs of \\ per unit. If the offer is accepted, Sunland will save all variable costs but no fixed costs. Prepare an analysis showing the total cost saving, if any, that Sunland will realize by buying the part. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
\begin{tabular}{|c|c|c|c|c|c|}
\hline & & & Buy & & \begin{tabular}{l}
Net Income \\
Increase (Decrease)
\end{tabular} \\
\hline Variable manufacturing costs & \$ & \$ & & \$ & \\
\hline Fixed manufacturing costs & & & & & \\
\hline Purchase price & & & & & \\
\hline Total annual cost & \$ & \$ & & \$ & \\
\hline
\end{tabular}
The decision should be to the part.
Studdy Solution
STEP 1
1. Sunland Industries incurs unit costs of \$8 (\$5 variable and \$3 fixed) for making each assembly part.
2. A supplier offers to make 10,300 assembly parts at \$6 per unit.
3. If the offer is accepted, Sunland will save all variable costs but no fixed costs.
4. We need to calculate the total cost saving by buying the part.
STEP 2
1. Calculate the total cost of making the parts in-house.
2. Calculate the total cost of buying the parts from the supplier.
3. Compare the total costs to determine the cost savings.
4. Determine the decision to make or buy the part based on cost savings.
STEP 3
Calculate the total cost of making the parts in-house.
The cost of making one part is \$8, which includes \$5 variable and \$3 fixed costs.
Total cost of making 10,300 parts:
STEP 4
Calculate the total cost of buying the parts from the supplier.
The cost of buying one part is \$6.
Total cost of buying 10,300 parts:
STEP 5
Compare the total costs to determine the cost savings.
Cost savings by buying the parts:
STEP 6
Determine the decision to make or buy the part based on cost savings.
Since the cost savings is positive (\$20,600), Sunland Industries should buy the part.
The decision should be to the part.
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