Current Designs 7-1 (Part 3) (Part Level Submission)

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		$25	/unit		Direct labor		$17	/unit
Variable overhead		$13	/unit		Fixed overhead		$20,000

Current Designs will need to produce 2,850 seats this year; 26% 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 $58 to purchase a seat from an outside vendor.

(a)

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).)

		Make		Buy		Net Income Increase (Decrease)
Direct Materials		$		$		$
Direct Labor
Variable Manufacturing Costs
Fixed Manufacturing Costs
Purchase Price
Total Annual Cost		$		$		$

Current Designs should

buymake

the Revolution Seating System.

(b) Would your answer in (a) change if the productive capacity released by not making the seats could be used to produce income of $21,000? (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 (Decrease) Make Buy Total Annual Cost Opportunity Cost Total Cost Current Designs should the Revolution Seating System