Maplewood Company must decide whether to make or buy some of its components. The
ID: 2410225 • Letter: M
Question
Maplewood Company must decide whether to make or buy some of its components. The costs of producing 60,000 switches for its generators are as follows. Direct materials $30,200 Variable overhead $44,800 Direct labor $42,000 Fixed overhead $63,000 the company has an opportunity to buy the switches at $2.80 per unit. If the company purchases the Instead of making the switches at an average cost of $3.00 $180,000 ÷ 60,000 switches, all the variable costs and one third of the fixed costs will be eliminated Prepare an incremental analysis showing whether the company should make or buy the switches. (Round per unit 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 The company should the Would your answer be different if the released productive capacity will generate additional income of $31,800? If the released capacity can generate additional income of $31,800, then the company should the components.Explanation / Answer
Incremental analysis :
The company should make the components
If the released capacity can generate additional income of $31800, then the company should buy the components
Per unit Make Buy Net income increase (decrease) Number of units 60000 Variable cost 1.95 117000 117000 Fixed cost 0.35 21000 21000 Purchase cost 2.80 168000 -168000 Total 138000 168000 -30000