Cali Son, Inc. owns a machine that produces baskets for the gifts the company sells. The company uses 900 baskets in production each month. The costs of making one basket is $4 for direct materials, $3 for variable manufacturing overhead, $2 for direct labor, and $5 for fixed manufacturing overhead. The unit cost is based on the monthly production of 900 baskets. The company determined that 30% of the fixed manufacturing overhead is avoidable in case the company buy from outside. An outside supplier has offered to sell Cali Son the baskets for $13 each and can supply all the units it needs.

Instructions

Prepare an incremental analysis to determine if Cali Son should buy the baskets from the supplier or not?