(a) Swifty Company must decide whether to make or buy some of its components. Th
ID: 2567159 • Letter: #
Question
(a)
Swifty Company must decide whether to make or buy some of its components. The costs of producing 68,900 switches for its generators are as follows.Direct materials $30,200 Variable overhead $44,600 Direct labor $46,455 Fixed overhead $82,000
Instead of making the switches at an average cost of $2.95 ($203,255 ÷ 68,900), the company has an opportunity to buy the switches at $2.66 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 Make Buy Net Income Increase (Decrease) Direct materials 30200 30200 Direct labor 46455 46455 Variable manufacturing costs 44600 44600 Fixed manufacturing costs 82000 61500 20500 Purchase price 183274 -183274 Total cost 203255 244774 -41519 Swifty Company will incur $ 41519 of additional costs if it buys the switches.
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