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Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel...

Question

Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel...

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 1,800 units):

Direct materials $ 30
Direct labor 110
Variable overhead 14
Fixed overhead 38
Total $ 192

Trailblazers has offered to sell the assembly to Mobility for $158 each. The total order would amount to 1,800 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 $39,150.


Required:

a. Prepare a schedule that shows the total differential costs

Status Quo Alternative Difference
Trailblazers’ offer
Materials
Labor
Variable overhead
Fixed overhead applied
Total costs

Answers

Differential Analysis
Status Quo Alternative Difference
Trailblazers offer 0 2,84,400 -2,84,400
Material 54,000 0 54000
Labour 1,98,000 0 198000
Variable overheads 25,200 0 25200
Fixed overheads applied 68,400 29,250 39,150
Total cost 3,45,600 3,13,650 31950


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