Do It! Review 20-3 (Part Level Submission)

Wilma Company must decide whether to make or buy some of its components. The costs of producing 60,000 switches for its generators are as follows.

Direct materials		$29,000		Variable overhead		$44,000
Direct labor		$25,000		Fixed overhead		$76,000

Instead of making the switches at an average cost of $2.90 ($174,000 60,000), the company has an opportunity to buy the switches at $2.65 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

Prepare an incremental analysis showing whether the company should buy the switches. (Enter negative amounts using either a negatives e.g.-45 or parentheses e.g. (45).) Make Net Income Increase (Decrease) Buy Direct materials Direct labor Variable manufacturing costs Fixed manufacturing costs Purchase price Total cost $ Wilma Company will incur $ of additional costs if it the switches. Would your answer be different if the released productive capacity will generate additional income of $34,000? (Enter negative amo preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Total Cost Opportunity cost Total cost $ the answer is The analysis shows that net income will be by $