FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:## Concord Corporation: Incremental Cost Analysis
### Production Costs for 100,000 Units
Concord Corporation manufactures widgets, and Bowden Company has proposed a deal to sell Concord the widgets at a price of $88,000 for 100,000 units. Below are the costs associated with Concord's production process for producing 100,000 units:
- **Direct Material:** $33,000
- **Direct Labor:** $29,500
- **Manufacturing Overhead:** $48,500
**Total Cost:** $111,000
### Incremental Cost/Savings Analysis
If Concord buys the widgets instead of making them, a manufacturing overhead cost of $12,150 will be eliminated. We need to determine the incremental cost or savings for Concord when deciding to buy the widgets from Bowden Company instead of producing them internally.
### Calculation Options
Choose the correct incremental cost or savings from the options below:
- \( \boxed{\$23,000 \text{ incremental savings}} \)
- \( \boxed{\$13,350 \text{ incremental cost}} \)
- \( \boxed{\$10,850 \text{ incremental savings}} \)
- \( \boxed{\$23,000 \text{ incremental cost}} \)
### Steps to Determine Incremental Cost/Savings
To solve for the incremental cost or savings, follow these steps:
1. **Calculate the reduced manufacturing overhead if components are no longer produced:**
$$ \text{Reduced Manufacturing Overhead} = \$48,500 - \$12,150 = \$36,350 $$
2. **Calculate the total savings from not producing the widgets:**
$$ \text{Total Cost of Production} = \$111,000 $$
$$ \text{Cost without Overhead Savings} = \$111,000 - \$12,150 = \$98,850 $$
3. **Compare the cost of buying versus making:**
Compare the cost of buying the widgets (\$88,000) with the cost of making them without the overhead savings (\$98,850).
4. **Determine the Incremental Savings:**
$$ \text{Incremental Savings} = \$98,850 - \$88,000 = \$10,850 $$
Therefore, the incremental savings for Concord if the widgets are bought instead of made is \( \$10,850 \).
### Conclusion
The correct option is:
\[ \boxed{\$10,850 \text
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