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The management of Novak Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the companys finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2017. 1. 8,000 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.30, direct labor $4.69, indirect labor $0.45, utilities $0.44. 3. Fixed manufacturing costs applicable to the production of CISCO were:

Cost Item		Direct		Allocated
Depreciation		$2,000		$880
Property taxes		510		410
Insurance		900		610
		$3,410		$1,900

All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments. 4. The lowest quotation for 8,000 CISCO units from a supplier is $87,590. 5. If CISCO units are purchased, freight and inspection costs would be $0.36 per unit, and receiving costs totaling $1,280 per year would be incurred by the Machining Department.

Prepare an incremental analysis for CISCO. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make CISCO Buy CISCO Direct material Direct labor Indirect labor Utilities Depreciation Property taxes Insurance Purchase price Freight and inspection Receiving costs Total annual cost LINK TO TEXT VIDEO: SIMILAR PROBLEM Based on your analysis, what decision should management make? The company should LINK TO TEXT VIDEO: SIMILAR PROBLEM Would the decision be different if Novak Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO

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