Do It! Review 7-12 Maplewood Campany must dacide whether to maka or buy same af

Question

Do It! Review 7-12 Maplewood Campany must dacide whether to maka or buy same af its components. The costs cf producing 59,00 switches for its generators are as follows Direct materials $,D rabla overhead $43,405 Direct labor $42,400 Flxed overhead $61,200 Instead of making the switches at an average cost of $2.95 ($176,705 59,900), the company has an opportunity to buy the switches at $2.75 per unit. If the company purchases the switches, all the variable costs and one third of the fixed costs wil be eliminated. Round par unit to , do mal places n-15 25. Ifan anmarnt m. li es t net nen me then enter with a ne at ve sin ning the number. 7-- Prepare a incremental ana ys s shnw ng wh ther the com pany should make or buy the switches. parenthesis, a.g. (15,000).) m o or Per Unit Make Buy (Decrease) Number of units The company should would your answer be ditterent it the released productive capacity will generate additional income of $31,620? Ir the released capacity can generate addtionl income of s1,920, then the company should Question Attempts: 1 of 2 used SAVE FOR LATER

Explanation / Answer

Answer 1. Make Buy Net Income Increase (Decrease) Direct Materials      29,700.00                     -          29,700.00 Direct Labor      42,400.00                     -          42,400.00 Variable Overhead      43,405.00                     -          43,405.00 Fixed Overhead      61,200.00      40,800.00        20,400.00 Purchase Cost - $2.75 X 50,000 Nos                     -      137,500.00 (137,500.00) Total Cost    176,705.00    178,300.00        (1,595.00) Company should Manufacture the Components. Maplewood will incur $1,595 additional cost if it purchases the switches. Answer 2. Make Buy Net Income Increase (Decrease) Direct Materials      29,700.00                     -          29,700.00 Direct Labor      42,400.00                     -          42,400.00 Variable Overhead      43,405.00                     -          43,405.00 Fixed Overhead      61,200.00      40,800.00        20,400.00 Purchase Cost - $2.75 X 50,000 Nos                     -      137,500.00 (137,500.00) Additional Income - Realeased Productive Capacity    (31,820.00)        31,820.00 Total Cost    176,705.00    146,480.00        30,225.00 The Company should buy the component.

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