Question

Maplewood Company must decide whether to make or buy some of its components. The costs of producing 59,900 switches for its generators are as follows. Direct materials $31,148 Variable overhead $53,311 Direct labour 41,331 Fixed overhead 59,301 Instead of making the switches at an average cost of $3.09 ($185,091 ÷ 59,900), the company has an opportunity to buy the switches at $2.89 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs will be eliminated.

(a) Your answer is partially correct. Try again. 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).)

Answer 1

Variable cost Direct Material Direct Labor Variable overhead Total variable cost Amount 31148 41331 53311 125790 Number units 59900 Net income increase / Particulars Per unit Make Buy (Decrease) Variable manufacturing cost 2.1 125790 125790 Fixed manufacturing cost 0.99 59301 39534 19767 Purchase cost 2.89 173111 -173111 Total cost | 185091 212645 -27554 Company should Make the product so It saves $27554