Current Designs faces a number of important decisions that require incremental analysis. One of Current Designs' competitive advantages is found in the ingenuity of its owner and CEO, Mike Cichanowski. His involvement in the design of kayak molds and production techniques has led to Current Designs being recognized as an industry leader in the design and production of kayaks. This ingenuity was evident in an improved design of one of the most important components of a kayak, the seat. The "Revolution Seating System" is a one-of-a-kind, rotating axis seat that gives unmatched, full-contact, under-leg support. It is quickly adjustable with a lever-lock system that allows for a customizable seat position that maximizes comfort for the rider. Having just designed the "Revolution Seating System," Current Designs must now decide whether to produce the seats internally or buy them from an outside supplier. The costs for Current Designs to produce the seats are as follows. Direct materials $22 /unit Direct labor $14 /unit Variable overhead $12 /unit Fixed overhead $20,000 Current Designs will need to produce 3,150 seats this year; 22% of the fixed overhead will be avoided if the seats are purchased from an outside vendor. After soliciting prices from outside suppliers, the company determined that it will cost $52 to purchase a seat from an outside vendor.
Current Designs faces a number of important decisions that require incremental analysis. One of Current Designs' competitive advantages is found in the ingenuity of its owner and CEO, Mike Cichanowski. His involvement in the design of kayak molds and production techniques has led to Current Designs being recognized as an industry leader in the design and production of kayaks. This ingenuity was evident in an improved design of one of the most important components of a kayak, the seat. The "Revolution Seating System" is a one-of-a-kind, rotating axis seat that gives unmatched, full-contact, under-leg support. It is quickly adjustable with a lever-lock system that allows for a customizable seat position that maximizes comfort for the rider. Having just designed the "Revolution Seating System," Current Designs must now decide whether to produce the seats internally or buy them from an outside supplier. The costs for Current Designs to produce the seats are as follows. Direct materials $22 /unit Direct labor $14 /unit Variable overhead $12 /unit Fixed overhead $20,000 Current Designs will need to produce 3,150 seats this year; 22% of the fixed overhead will be avoided if the seats are purchased from an outside vendor. After soliciting prices from outside suppliers, the company determined that it will cost $52 to purchase a seat from an outside vendor.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Current Designs faces a number of important decisions that require incremental analysis.
One of Current Designs' competitive advantages is found in the ingenuity of its owner and CEO, Mike Cichanowski. His involvement in
the design of kayak molds and production techniques has led to Current Designs being recognized as an industry leader in the design
and production of kayaks. This ingenuity was evident in an improved design of one of the most important components of a kayak, the
seat. The "Revolution Seating System" is a one-of-a-kind, rotating axis seat that gives unmatched, full-contact, under-leg support. It is
quickly adjustable with a lever-lock system that allows for a customizable seat position that maximizes comfort for the rider.
Having just designed the "Revolution Seating System," Current Designs must now decide whether to produce the seats internally or
buy them from an outside supplier. The costs for Current Designs to produce the seats are as follows.
Direct materials
$22 /unit
Direct labor
$14 /unit
Variable overhead
$12 /unit
Fixed overhead
$20,000
Current Designs will need to produce 3,150 seats this year; 22% of the fixed overhead will be avoided if the seats are purchased from
an outside vendor. After soliciting prices from outside suppliers, the company determined that it will cost $52 to purchase a seat from
an outside vendor.
Transcribed Image Text:Prepare an incremental analysis showing whether Current Designs should make or buy the "Revolution Seating System." (Enter
decrease in net income then enter with a negative sign preceding the number or parenthesis, e.g. -15,000 or (15,000).)
Net Income
Increase
Make
Buy
(Decrease)
Direct Materials
2$
$4
$
Direct Labor
Variable Manufacturing Costs
Fixed Manufacturing Costs
Purchase Price
Total Annual Cost
2$
$
$
Current Designs should
the Revolution Seating System.
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