ake-or-Buy, Traditional Analysis Horrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows Thickness Density Gauge Gauge Total Sales $ 165,000 $ 88,000 $ 253,000 Less variable expenses 88,000 50,600 138,600 Contribution margin $ 77,000 $ 37,400 $ 114,400 Less direct fixed expenses 22,000 41,800 63,800 Segment margin $ 35,000 $ (4,400) $ 50,600 Less common fixed expenses 33,000 Operating Income $ 17,600 includes depreciation The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,200 subassemblies are purchased. All units produced are sold, and there are no ending Inventories of subassemblies, Morriti is considering making the subassembly rather than buying it Unit-level variable manufacturing costs are as follows: Direct materials $2 Direct labor 3 Variable overhead 2 No significant non-unit-level costs are incurred Morrill is considering two alternatives to supply the productive capacity for the bassembly 1. Lease the needed space and equipment at a cost of $29.700 per quarter for the soace and 511.000 per quarter for a supervisor. There are no other liked expenses Previous Next