Your answer is correct. Prepare an incremental analysis showing whether the comp
ID: 2557590 • Letter: Y
Question
Your answer is correct. Prepare an incremental analysis showing whether the company should make or buy the switches. (If amount de preceding the number e.g. -45 or parentheses e.g. (45)) Make Buy Net Income Increase (Decrease) Direct materials 29,000 29,000 Direct labor 25,000 25,000 Variable manufacturing Costs 44,000 44,000 Fixed manufacturing costs 76,000 57000 19000 Purchase price 0 159000 (159000) Total cost (42000) 174,000 216000 42000 Ayayai Company will incur $ + of additional costs if it buys the switches.Explanation / Answer
Answers
Under one alternative, opportunity cost can be considered as cost in “make” section. In second alternative, it can be considered as in income in “Buy” section.
Make
Buy
Increase (Decrease)
Total Cost
174000
216000
-42000
Opportunity Cost
45500
0
45500
TOTAL COst
$219500
$216000
$3500
OR
Net Income
Make
Buy
Increase (Decrease)
Total Cost
174000
216000
-42000
Opportunity Cost
0
-45500
45500
TOTAL COst
$174000
$170500
$3500
Make
Buy
Increase (Decrease)
Total Cost
174000
216000
-42000
Opportunity Cost
45500
0
45500
TOTAL COst
$219500
$216000
$3500
OR
Net Income
Make
Buy
Increase (Decrease)
Total Cost
174000
216000
-42000
Opportunity Cost
0
-45500
45500
TOTAL COst
$174000
$170500
$3500
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