Question

Ve devices. For years it has made lity for $110 each. The total order Lobility Partners makes wheelchairs and other assistive devices. For years the rear wheel assembly for its wheelchairs. A local bicycle manufacturing 1 Trailblazers, Inc., has offered to sell these rear wheel assemblies to Mobility. Trailblazers has offered to sell the assembly to Mobility for $110 each. The 10 would amount to 2,000 rear wheel assemblies per year, which Mobility's manag will buy instead of make if Mobility can save at least $10,000 per year. AC Trailblazer's offer would eliminate annual fixed overhead of $40,000. If Mobil the assembly, its cost per rear wheel assembly is as follows (based on annual prou of 2,000 units): Direct Materials $25 Direct Labor $53 Variable Overhead $16 Fixed Overhead $47 Total $141 Required: Should Mobility make rear wheel assemblies or buy them from Trailblazers? Prepare a schedule that shows the differential costs per rear wheel assembly. (10 points)

Answer 1

	Cost of Making	Cost of Buying	Change in Cost
Direct materials	2,000 x 25 = 50,000	0	50,000 lower
Direct labor	2,000 x 53 = 106,000	0	106,000 lower
Variable overhead	2,000 x 16 = 32,000	0	32,000 lower
Fixed overhead	2,000 x 47 = 94,000	54,000	40,000 lower
Trailblazers price	0	2,000 x 110 = 220,000	220,000 higher
Total cost	$282,000	$274,000	$8,000 lower

If rear wheel assembly is bought from Trailblazer's, there would be a saving of $8,000 in cost. Since the saving in cost of $8,000 is less than managements expectation of $10,000. Hence, mobility should make rear wheel assembly.

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