Current Attempt in Progress

Pharoah Company must decide whether to make or buy some of its components. The costs of producing 60,500 switches for its generators are as follows.

Direct materials		$29,600		Variable overhead		$44,400
Direct labor		$21,480		Fixed overhead		$83,600

Instead of making the switches at an average cost of $2.96 ($179,080 60,500), the company has an opportunity to buy the switches at $2.70 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

(a)

Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Make		Buy		Net Income Increase (Decrease)
Direct materials		$		$		$
Direct labor
Variable manufacturing costs
Fixed manufacturing costs
Purchase price
Total cost		$		$		$

Pharoah Company will incur $___________________of additional costs if it a) buys or b) makes the switches.