Question

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	$	27
Direct labor		53
Variable overhead		20
Fixed overhead		45
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 $38,700.

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.)

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

	Make
	Buy

Answer 1

Differential Cost Schedule
	Make	Buy	Difference
Direct material	54,000	0	54,000	Lower
Direct labor	106,000	0	106,000	Lower
Variable overhead	40,000	0	40,000	Lower
Fixed overhead	90,000	51,300	38,700	Lower
Purchase cost	0	220,000	220,000	Higher
Total cost	290,000	271,300	18,700	Lower
Make, Since savings are lower than $20,000