# Differential Cost Analysis: Make. Buy DecisionMobility Partners considering whether to **make** orbuy** rear wheel assemblies for itschairs. We analyze the relevant (dential) costs aid in decision. --- ##1. Cost (per Unit| Cost Element | (per unit) | Buy ( unit) | ---------------------|---------------:|:--------------:| | Direct materials | $32 | — | | Direct labor | $110 | — | | Variable overhead | $17 | — | | Fixed overhead | $38 | — | | **Purchase price** | — | $162 | **Annual Production:** 1,800 units --- ## 2. Relevant Costs ### A. Costs to Make (Relevant) - **Direct materials:** $32/unit × 1,800 = $57,600 - **Direct labor:** $110/unit × 1,800 = $198,000 - **Variable overhead:** $17/unit × 1,800 = $30,600 - **Fixed overhead:** $38/unit × 1,800 = $68,400 - However, only $37,750 of fixed overhead *can be eliminated* if making is stopped. ### B. Costs to Buy - **Purchase price:** $162/unit × 1,800 = $291,600 - **Unavoidable fixed overhead:** - Total fixed overhead: $68,400 - Less: Avoidable fixed overhead: $37,750 - **Unavoidable fixed overhead:** $68,400 - $37,750 = $30,650 --- ## 3. Schedule of Total Differential Costs | Cost Element | Make (Total) | Buy (Total) | Differential (Buy–Make) | |----------------------------|:------------:|:-----------:|:-----------------------:| | Direct materials | $57,600 | — | -$57,600 | | Direct labor | $198,000 | — | -$198,000 | | Variable overhead | $30,600 | — | -$30,600 | | Fixed overhead (avoidable) | $37,750 | — | -$37,750 | | Fixed overhead (unavoidable) | $30,650 | $30,650 | $ | | Purchase cost | — | $291,600 | +$291,600 | | **Total relevant cost** | **$324,950** | **$322,250**| **-$2,700** | **Calculation for "Make":** - Direct materials: $57,600 - Direct labor: $198,000 - Variable overhead: $30,600 - Fixed overhead (avoidable): $37,750 - Fixed overhead (unavoidable): $30,650 - **Total:** $324,950 **Calculation for "Buy":** - Purchase cost: $291,600 - Fixed overhead (unavoidable): $30,650 - **Total:** $322,250 **Differential Cost (Savings if Buy):** $324,950 (Make) - $322,250 (Buy) = **$2,700** --- ## 4. Summary & Recommendation - **Total savings if buy:** $2,700 per year. - **Required minimum savings:** $20,000 per year. ### **Conclusion** Accepting Trailblazers’ offer will **not** meet Mobility’s management’s minimum savings target of $20,000 per year. Therefore, **Mobility should continue making the assemblies in-house** unless other qualitative factors are considered.

# Differential Cost Analysis: Make vs. Buy Decision Mobility Partners is assessing whether to **make** or **buy** rear wheel assemblies for its wheelchairs. The following analysis outlines the relevant costs associated with each option. --- ## 1. Cost Breakdown ### A. Costs to Make (Per Unit) | Cost Element | Cost per Unit | |---------------------|---------------:| | Direct materials | $32 | | Direct labor | $110 | | Variable overhead | $17 | | Fixed overhead | $38 | ### B. Costs to Buy | Cost Element | Cost per Unit | |---------------------|---------------:| | Purchase price | $162 | **Annual Production:** 1,800 units --- ## 2. Relevant Costs ### A. Costs to Make (Total) - **Direct materials:** $32/unit × 1,800 = **$57,600** - **Direct labor:** $110/unit × 1,800 = **$198,000** - **Variable overhead:** $17/unit × 1,800 = **$30,600** - **Fixed overhead:** $38/unit × 1,800 = **$68,400** - **Avoidable Fixed Overhead:** $37,750 ### B. Costs to Buy (Total) - **Purchase price:** $162/unit × 1,800 = **$291,600** - **Unavoidable fixed overhead:** - Total fixed overhead: $68,400 - Less: Avoidable fixed overhead: $37,750 - **Unavoidable fixed overhead:** $68,400 - $37,750 = **$30,650** --- ## 3. Schedule of Total Differential Costs | Cost Element | Make (Total) | Buy (Total) | Differential (Buy - Make) | |----------------------------|:------------:|:-----------:|:--------------------------:| | Direct materials | $57,600 | — | -$57,600 | | Direct labor | $198,000 | — | -$198,000 | | Variable overhead | $30,600 | — | -$30,600 | | Fixed overhead (avoidable) | $37,750 | — | -$37,750 | | Fixed overhead (unavoidable)| $30,650 | $30,650 | $0 | | Purchase cost | — | $291,600 | +$291,600 | | **Total relevant cost** | **$324,950** | **$322,250**| **-$2,700** | --- ## 4. Summary & Recommendation - **Total savings if buying:** $2,700 per year. - **Required minimum savings:** $20,000 per year. ### **Conclusion** Accepting Trailblazers’ offer will **not** satisfy Mobility’s management’s minimum savings target of $20,000 per year. Therefore, **Mobility should continue making the assemblies in-house** unless other qualitative factors are considered.

# Differential Cost Analysis: Make vs. Buy Decision Mobility Partners is evaluating whether to **make** or **buy** rear wheel assemblies for its wheelchairs. This analysis outlines the relevant costs tied to each option. --- ## 1. Cost Breakdown ### A. Costs to Make (Per Unit) Mobility's costs to make the assemblies include direct materials, labor, variable, and fixed overhead. The total cost per unit for making is comprised of $32 for materials, $110 for labor, $17 for variable overhead, and $38 for fixed overhead. ### B. Costs to Buy Trailblazers offers the wheel assemblies at a unit price of $162. This cost will be used to evaluate the buy option against the make option. --- ## 2. Relevant Costs ### A. Costs to Make (Total) Total costs for making the assemblies are calculated based on the annual production of 1,800 units. This results in a total of $57,600 for materials, $198,000 for labor, $30,600 for variable overhead, and $68,400 for fixed overhead, with $37,750 classified as avoidable. ### B. Costs to Buy (Total) The total cost for buying the assemblies amounts to $291,600 based on the purchase price. The unavoidable fixed overhead is determined to be $30,650 after accounting for the avoidable portion. --- ## 3. Schedule of Total Differential Costs The schedule compares total costs between making and buying the assemblies. The analysis shows a total relevant cost of $324,950 for making and $322,250 for buying, resulting in a differential cost of -$2,700. --- ## 4. Summary & Recommendation The total savings from purchasing instead of making the assemblies is $2,700 per year. However, since the required minimum savings is $20,000, the recommendation is to continue in-house production unless other factors are considered.