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		$29,300		Variable overhead		$44,200
Direct labor		$30,634		Fixed 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 an 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?