Exercise 20-5 Schopp nc. has been manufacturing ts own shades or s able lamps. T

Question

Exercise 20-5 Schopp nc. has been manufacturing ts own shades or s able lamps. The company current y operating at 100% o capac an arabe an act m overheads charged to production at the rate of 50% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $3.68 and $4.80, respectively Normal production is 25,900 table lamps per year. A supplier offers to make the lamp shades at a price of $12.80 per unit. If Schopp Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $40,690 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products. Prepare the incremental analysis for the decision to make or buy the lamp shades. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost

Explanation / Answer

Make Buy Net IncomeIncrease (Decrease) Direct materials 95312 95312 Direct labor 124320 124320 Variable overhead costs 62160 62160 Fixed manufacturing costs 40690 40690 0 Purchase price 331520 -331520 Total annual cost 322482 372210 -49728 2 No 3 Yes, income would increase by $12945(62673-49728)

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