Blue Spruce Company must decide whether to make or buy some of its components. The costs of producing 60,800 switches for its generators are as follows.

Direct materials		$30,400		Variable overhead		$39,520
Direct labour		42,560		Fixed overhead		58,368

Instead of making the switches at an average cost of $2.81 ($170,848 60,800), the company has an opportunity to buy the switches at $2.61 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs will be eliminated.

(a)

Prepare an incremental analysis showing whether the company should make or buy the switches. (Round per unit answers to 2 decimal places, e.g. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).)

				Per Unit		Make		Buy		Net Income Increase (Decrease)
Number of units:		enter a number of units
select an item Purchase priceFixed manufacturing costsManufacturing overheadCost of good soldTotal annual costVariable manufacturing costs				$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Cost of good soldVariable manufacturing costsManufacturing overheadFixed manufacturing costsPurchase priceTotal annual cost				enter a dollar amount rounded to 2 decimal places		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Fixed manufacturing costsVariable manufacturing costsCost of good soldTotal annual costManufacturing overheadPurchase price				enter a dollar amount rounded to 2 decimal places		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a closing name Total annual costVariable manufacturing costsCost of good soldFixed manufacturing costsPurchase priceManufacturing overhead						$enter a total amount		$enter a total amount		$enter a total amount

The company should select an option buymake the components.

(b)

Would your answer be different if the released productive capacity would generate additional income of $28,652?

If the released capacity can generate additional income of $28,652, then the company should select an option makepurchase

the components.