(a) Wilma Company must decide whether to make or buy some of its components. The

Question

(a)

Wilma 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 $29,800 Variable overhead $45,400 Direct labor $29,940 Fixed overhead $76,400
Instead of making the switches at an average cost of $2.90 ($181,540 ÷ 62,600), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

Explanation / Answer

a) Prepare incremental analysis :

Wilma company will incur $47284 of additional cost if it buy the switches

Make Buy Net income increase (decrease) Direct material 29800 29800 Direct labour 29940 29940 Variable manufacturing cost 45400 45400 Fixed manufacturing cost (76400/4) 19100 19100 Purchase price 171524 -171524 Total cost 124240 171524 -47284

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.