Question

Incremental analysis:

 Make CISCO Buy CISCO Net Income Increase (Decrease) Direct materials (7900 x \$4.50) 35550 0 35550 Direct labor (7900 x \$4.00) 31600 0 31600 Indirect labor (7900 x \$0.40) 3160 0 3160 Utilities (7900 x \$0.35) 2765 0 2765 Depreciation (\$1900 + \$860) 2760 860 1900 Property taxes (\$460 + \$260) 720 260 460 Insurance (\$860 + \$560) 1420 560 860 Purchase price 0 73349 -73349 Freight and inspection (7900 x \$0.34) 0 2686 -2686 Receiving costs 0 1260 -1260 Total annual cost 77975 78975 -1000

The company should make.

Buying CISCO would result in a decrease in net income of \$1,000 and hence Ayayai should make CISCO.

Yes.

The opportunity cost of making \$3,000 will increase the total cost of making. Thus, the decision would be buy.

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