The management of Blossom Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company's finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2022. 1.8,100 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $4.86, direct labor $4.40, indirect labor $0.48, utilities $0.38. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Depreciation Property taxes Insurance Direct material Direct labor Indirect labor Utilities Depreciation Property taxes Insurance Direct Allocated $2,000 $940 All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will not be eliminated if CISCO is purchased. So if CISCO is purchased, the fixed manufacturing costs allocated to CISCO will have to be absorbed by other production departments. Purchase price 4. The lowest quotation for 8,100 CISCO units from a supplier is $82,656. 5. If CISCO units are purchased, freight and inspection costs would be $0.36 per unit, and receiving costs totaling $1,260 per year would be incurred by the Machining Department. (a) Prepare an incremental analysis for CISCO. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Receiving costs 550 Freight and inspection Total annual cost 960 $3,510 $2,010 450 The company should 620 $ Total $ $2,940 1,000 1,580 5,520 Make CISCO $ $ (b) Based on your analysis, what decision should management make? Buy CISCO $ Net Income Increase (Decrease)
The management of Blossom Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company's finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2022. 1.8,100 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $4.86, direct labor $4.40, indirect labor $0.48, utilities $0.38. 3. Fixed manufacturing costs applicable to the production of CISCO were: Cost Item Depreciation Property taxes Insurance Direct material Direct labor Indirect labor Utilities Depreciation Property taxes Insurance Direct Allocated $2,000 $940 All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will not be eliminated if CISCO is purchased. So if CISCO is purchased, the fixed manufacturing costs allocated to CISCO will have to be absorbed by other production departments. Purchase price 4. The lowest quotation for 8,100 CISCO units from a supplier is $82,656. 5. If CISCO units are purchased, freight and inspection costs would be $0.36 per unit, and receiving costs totaling $1,260 per year would be incurred by the Machining Department. (a) Prepare an incremental analysis for CISCO. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Receiving costs 550 Freight and inspection Total annual cost 960 $3,510 $2,010 450 The company should 620 $ Total $ $2,940 1,000 1,580 5,520 Make CISCO $ $ (b) Based on your analysis, what decision should management make? Buy CISCO $ Net Income Increase (Decrease)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The management of Blossom Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from
an outside supplier. The part, called CISCO, is a component of the company's finished product.
The following information was collected from the accounting records and production data for the year ending December 31, 2022.
1.8,100 units of CISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each CISCO unit were:
direct materials $4.86, direct labor $4.40, indirect labor $0.48, utilities $0.38.
3. Fixed manufacturing costs applicable to the production of CISCO were:
Cost Item
Depreciation
Property taxes
Insurance
Direct material
Direct labor
Indirect labor
Utilities
Depreciation
Property taxes
Insurance
Direct Allocated
$2,000
$940
All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will not be eliminated if
CISCO is purchased. So if CISCO is purchased, the fixed manufacturing costs allocated to CISCO will have to be absorbed by other
production departments.
Purchase price
4. The lowest quotation for 8,100 CISCO units from a supplier is $82,656.
5. If CISCO units are purchased, freight and inspection costs would be $0.36 per unit, and receiving costs totaling $1,260 per year
would be incurred by the Machining Department.
(a) Prepare an incremental analysis for CISCO. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or
parentheses e.g. (45).)
Receiving costs
550
Freight and inspection
Total annual cost
960
$3,510 $2,010
450
620
The company should.
Total
$2,940
$
1,000
1,580
5,520
Make CISCO
$
(b) Based on your analysis, what decision should management make?
Buy CISCO
$
Net Income
Increase
(Decrease)
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