Question & Answer: Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel assembly for its wheelchai…..

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 2,000 units):

Direct materials $ 28
Direct labor 53
Variable overhead 18
Fixed overhead 46
Total $ 145

Trailblazers has offered to sell the assembly to Mobility for $110 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 fixed overhead of $39,800.

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Required:

a. Prepare a schedule that shows the total differential costs. (Select option “higher” or “lower”, keeping Status Quo as the base. Select “none” if there is no effect.)

Status Quo Alternative Difference
Trailblazers’ offer
Materials
Labor
Variable overhead
Fixed overhead applied
Total costs $0 $0

b. Should Mobility make rear wheel assemblies or buy them from Trailblazers?

Make
Buy

Expert Answer

 

a) Schedule of Differential costs
Staus alternative differnece
Quo
Trailblazer’s offer 220,000 -220,000
Materials 56000 56,000
Labor 106000 106,000
Variable overhead 36000 36,000
fixed overhead deposted 92000 52200 39800
total costs 290000 272,200 17,800
b) Make since saving of $17,800 is less than demanded saving of $20,000

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