Given the Following Data for a Make-Or-Buy Decision What Would Be Your Cost Savings for the Preferred Alternative

question 65

Short Answer

Given the following data for a make-or-buy decision: $$\begin{array} { l l l } \text { Alternative } & \text { Fixed Cost } & \text { Variable Cost } \\\hline \text { Buy } & \$ 0 \text { per year } & \$ 8 \text { per unit } \\\text { Make } & \$ 100,000 \text { per year } & \$ 4 \text { per unit }\end{array}$$ What would be your cost savings for the preferred alternative, for 32,000 units per year, compared to the other alternative?

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Definitions:

Allowance for Doubtful Accounts

A contra asset account that reduces the total amount of accounts receivable on the balance sheet to reflect the likelihood of some accounts being uncollectible.

Net Credit Sales

The total value of sales made on credit after subtracting any returns and allowances, reflecting the actual sales revenue expected to be collected.

Allowance for Doubtful Accounts

A contra-asset account that represents the amount of receivables a company does not expect to actually collect.

Accounts Receivable

Amounts due to a company from its customers or clients for services rendered or goods delivered, but not yet paid for.