Complete the analysis below to determine if the decision

Reference no: EM13483320

The management of Peterson Manufacturing Company has asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside supplier. The part, called Tropica, is a component of Peterson's finished product.

An analysis of the accounting records and the production data revealed the following information for the year ending December 31, 2012.

1.	The Machinery Department produced 36,800 units of Tropica.
2.	Each Tropica unit requires 10 minutes to produce. Three people in the Machinery Department work full time (2,000 hours per year) producing Tropica. Each person is paid $11.28 per hour.
3.	The cost of materials per Tropica unit is $2.07.
4.	Manufacturing costs directly applicable to the production of Tropica are: indirect labor, $5,445; utilities, $1,373; depreciation, $1,539; property taxes and insurance, $1,073. All of the costs will be eliminated if Tropica is purchased.
5.	The lowest price for a Tropica from an outside supplier is $3.88 per unit. Freight charges will be $0.37 per unit, and a part-time receiving clerk at $7,579 per year will be required.
6.	If Tropica is purchased, the excess space will be used to store Peterson's finished product. Currently, Peterson rents storage space at approximately $0.61 per unit stored per year. Approximately 6,100 units per year are stored in the rented space.

(a)

Complete the incremental analysis for Tropica. (If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign preceding the amount, e.g. -45 or parenthesis, e.g. (45).
Make Tropica Buy Tropica Net Income (Decrease)
Direct Materials
Direct Labor
Manufacturing Costs
Indirect Labor
Utilities
Depreciation
Property Taxes & Insurance
Cost of Goods Purchased
Recieving
Freight
Storage
Total Anual Cost

(b)	Based on your analysis, what decision should management make?

	Should the company Buy or Make Tropica?

(c)	Complete the analysis below to determine if the decision would be different if Peterson Manufacturing Company has the opportunity to produce $10,462 of net income with the facilities currently being used to manufacture Tropica?
	Should the company Buy or Make Tropica?

Make Tropica Buy Tropica Net Income (Decrease)

Total Annual Cost

Opportunity Cost

Total Cost

Reference no: EM13483320

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