Question

Question 7 Maplewood Company must decide whether to make or buy some of its components. The costs of producing 61,000 switches for its generators are as follows. Direct materials Direct labour $30,500 42,090 Variable overhead Fixed overhead $57,950 60,390 Instead of making the switches at an average cost of $3.13 $190,930 = 61,000), the company has an opportunity to buy the switches at $2.93 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs will be eliminated. (a) Prepare an incremental analysis showing whether the company should make or buy the switches. (Round per unit answers to 2 decimal places, e.g. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).) Net Income Increase (Decrease) Per Unit Make Buy Number of units:

Answer 1

Units Particulars Direct material Direct labour Variable manufacturing cost Fixed manufacturing cost Purchase cost Total cost 61000 Net income increase / Per unit Make Buy (Decrease) 0.5 30500 30500 0.69 42090 42090 0.95 57950 57950 0.99 60390 45293 15098 1787301 -178730 3.13 190930 224022.5 -33093 Cullumber company will incur addition $ 33093 if buy the units