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Mobility Partners makes wheelchairs and other assistive devices. For years it has made therear wheel assembly for its wheelchairs. A local bicycle manufacturing fi rm, 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 . . . . . . . . . . . . . . . . . . . . . . . $ 50 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Variable overhead . . . . . . . . . . . . . . . . . . . . . 32 Fixed overhead . . . . . . . . . . . . . . . . . . . . . . . 94 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $282 Trailblazers has offered to sell the assembly to Mobility for $220 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 fi xed overhead of $80,000. Required Should Mobility make rear wheel assemblies or buy them from Trailblazers? Prepare a schedule that shows the differential costs per rear wheel assembly

Mobility Partners makes wheelchairs and other assistive devices. For years it has made therear wheel assembly for its wheelchairs. A local bicycle manufacturing fi rm, 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 . . . . . . . . . . . . . . . . . . . . . . . $ 50 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Variable overhead . . . . . . . . . . . . . . . . . . . . . 32 Fixed overhead . . . . . . . . . . . . . . . . . . . . . . . 94 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $282 Trailblazers has offered to sell the assembly to Mobility for $220 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 fi xed overhead of $80,000. Required Should Mobility make rear wheel assemblies or buy them from Trailblazers? Prepare a schedule that shows the differential costs per rear wheel assembly

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
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Mobility Partners makes wheelchairs and other assistive devices. For years it has made therear wheel assembly for its wheelchairs. A local bicycle manufacturing fi rm, 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 . . . . . . . . . . . . . . . . . . . . . . . $ 50
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Variable overhead . . . . . . . . . . . . . . . . . . . . . 32
Fixed overhead . . . . . . . . . . . . . . . . . . . . . . . 94
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $282
Trailblazers has offered to sell the assembly to Mobility for $220 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 fi xed overhead of $80,000.
Required
Should Mobility make rear wheel assemblies or buy them from Trailblazers? Prepare a schedule that shows the differential costs per rear wheel assembly

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