Based on the information contained in Fig. 9.10 in the text, the break-even quantity of units per month purchased from the Eagle Company, i.e. at which purchasing the no. 18 units from the Eagle company at $24 per unit becomes worthwhile for the Swan Manufacturing Company is closest to; 2200 2000 2600 2400 Figure 9.10 Simplified examples of incremental analysis Make or buy decision Background The Swan Manufacturing Company currently makes component no. 18 for use in a finished product. It requires approximately 6000 units of no. 18 each three months. The Eagle Company has offered to supply Swan with this component at $24 per unit. Swan's accountants have calculated the cost of manufacture of no. 18 as follows: lev $ 5 Materials Direct labour Variable overheads Fixed overheads 12 4 6 $27 The accountants also estimate that the company would save $8000 per quarter on fixed overheads if no. 18 were purchased and not manufactured. CHAPTER 9 ACCOUNTING AND MANAGEMENT 307 Analysis Incremental savings: Materials Direct labour Variable overheads Fixed overheads Incremental costs: Purchase of no. 18 $30 000 72 000 24 000 8 000 $134 000 $144 000 nly Preliminary conclusion: continue to make the component