Should mobility make rear wheel assemblies

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Reference no: EM13130183

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 a as follows (based on annual production of 2,000 units):
Direct materials $25
Direct labor $53
Variable overhead $16
Fixed overhead $47
Total $141

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 $10,000 per year. Accepting trailblazer’s offer would eliminate annual fixed over head of $40,000

a. Should mobility make rear wheel assemblies or buy them from trailblazers? Prepare a schedule that shows the differential costs per rear wheel assembly.

Reference no: EM13130183

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