Question

Flint Company must decide whether to make or buy some of its components. The costs of producing 62,600 switches for its generators are as follows. Direct materials $29,000 Variable overhead $44,400 Direct labor $28,644 Fixed overhead $82,000 Instead of making the switches at an average cost of $2.94 ($184,044 ÷ 62,600), the company has an opportunity to buy the switches at $2.69 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

(a) Your answer is correct. Prepare an incremental analysis showing whether the company should make or buy the switches. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $ $ $ Direct labor Variable manufacturing costs Fixed manufacturing costs Purchase price Total cost $ $ $ Flint Company will incur $ of additional costs if it makesbuys the switches. SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 8 of 15 used

(b) Would your answer be different if the released productive capacity will generate additional income of $50,160? (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Total Cost $ $ $ Opportunity cost Total cost $ $ $ YesNo , the answer is samedifferent . The analysis shows that net income will be increaseddecreased by $ .

Answer 1

Prepare an incremental analysis showing whether the company should make or buy the switches. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $29000 $ 29000 Direct labor 28644 28644 Variable manufacturing costs 44400 44400 Fixed manufacturing costs 82000 61500 20500 Purchase price 184044 -184044 Total cost $184044 $245544 -61500 Flint Company will incur $61500 of additional costs if it buys the switches. SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 8 of 15 used

(b) Would your answer be different if the released productive capacity will generate additional income of $50,160? (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Total Cost $184044 $245544 $61500 Opportunity cost 50160 -50160 Total cost $234204 $245544 -11340 No , the answer is same . The analysis shows that net income will be decreased by $11340