Please answer entirely. Old Camp Company manufactures awnings for its own line o
ID: 2558893 • Letter: P
Question
Please answer entirely.
Old Camp Company manufactures awnings for its own line of tents. The company is currently operating at capacity and has received an offer from one of its suppliers to make the 14,000 awnings it needs for $32 each. Old Camp's costs to make the awning are $19 in direct materials and $7 in direct labor. Variable manufacturing overhead is 75 percent of direct labor. If Old Camp accepts the offe 549,000 of fixed manufacturing overhead currently being charged to the awnings will have to be absorbed by other product lines. Required 1. Complete the incremental analysis for the decision to make or buy the awnings in the table provided below Net Income Increase Decrease Make Bu Direct Materials Direct Labor Variable OH Fixed OH Purchase Price Total 2. Should Old Camp continue to manufacture the awnings or should they purchase the awnings from the supplier? Manufacture Purchase 3. Assuming that the capacity released by purchasing the awnings allowed Old Camp to record a profit of $22,000, should Old Camp continue to manufacture or purchase the awnings? Manufacture PurchaseExplanation / Answer
1) Incremental analysis
2) Old camp should continue to manufacture.
3) if the capacity released by purchasing the awning allowed old camp to record a profit of $22,000 then old camp should purchase the awnings.
Make Buy Net income increase (decrease) Direct material 266000 266000 Direct labour 98000 98000 Variable manufacturing overhead 73500 73500 Fixed manufacturing overhead 49000 49000 None Purchase cost 448000 (448000) Total 486500 497000 (10500)