8-27A (similar to) main company product Inc., has offered to make the None of Pa

Question

8-27A (similar to) main company product Inc., has offered to make the None of Parot Enterprises fixed costs will be the freed capacity could be used to build a new product. This new product would be expected to generate $35,000 of contribution margin per year However of the parentheses in the Difference column whon the cost to make exceeds the cost to buy,) Incremental Analysits Outsource Component Data Table Direct material per unit $ 5.75 Total cost of 90,000 components Variable manufacturing overhead per unit Fixed manufacturing overhead per unit Net cost 1 25 S 1625 Print Done Print Done 3

Explanation / Answer

Incremental Annalysis for Outsourcing Decision Make Componet Outsource Component Difference Variable Cost $14.00 $12.50 $1.50 Fixed Cost $1.25 $1.25 $0.00 Total Cost/Unit $15.25 $13.75 $1.50 No. of Unit 90000 90000 Total Cost of 90000 Component $1,372,500 $1,237,500 $135,000 Less: Profit from Other Product -$35,000 -$35,000 Net Cost $1,372,500 $1,202,500 $100,000 If, Outsourcing deciaion will be taken then operting income will be increased by $100000

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