Do It! Review 7-3

Wilma Company must decide whether to make or buy some of its components. The costs of producing 63,800 switches for its generators are as follows.

Direct materials$29,300Variable overhead$44,200Direct labor$30,634Fixed overhead$82,800

Instead of making the switches at an average cost of $2.93 ($186,934 63,800), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

Prepare a incremental analysis showing whether the company should make or buy the switches

Would your answer be different if the released productive capacity will generate additional income of $53,668