Concord Corporation manufactures widgets. Bowden Company has approached Concord with a proposal to sell the company widgets at a price of $88000 for 100000 units. The following costs are associated with Concord's production process when 100000 units are produced: Direct material Direct labor Manufacturing overhead Total $ 33000 29500 48500 $111000 Manufacturing overhead of $12150 of costs will be eliminated if the components are no longer produced by Concord. What is the incremental cost or savings to Concord if the widgets are bought instead of made? $23000 incremental savings $13350 incremental cost $10850 incremental savings O $23000 incremental cost

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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## 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
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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