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Dawson Company manufactures watches. They produce 2 5 , 0 0 0 units of watch cases each year for use on their production line. The

Dawson Company manufactures watches. They produce 25,000 units of watch cases each year
for use on their production line. The cost per unit for the watch case is listed below:
Direct Materials $5.00
Direct Labor $8.00
Variable Overhead $3.00
Fixed Overhead $9.00
Total cost per watch case: $25.00
An outside supplier has offered to sell 25,000 watch cases to Dawson Company for $22.99 per
watch case. If Dawson Company accepts this offer, the facilities used to manufacture the watch
cases could be rented to another company at an annual rental fee of $100,000. Also, Dawson
Company has determined that $3 of incremental fixed manufacturing overhead would be
incurred if the company makes the watch case.
Should Dawson Company accept the offer to outsource the watch cases? Explain.
Construct an incremental analysis of the two alternatives using an Excel worksheet to
support your decision.

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