Question
Edisson Corporation manufactures motorcycles. The following are the details of the costs incurred to manufacture 12,000 leather seats for the motorcycles: Direct Materials: $250,000 Direct
Edisson Corporation manufactures motorcycles. The following are the details of the costs incurred to manufacture 12,000 leather seats for the motorcycles: Direct Materials: $250,000 Direct Labour: $200,000 Variable Manufacturing Overhead: $80,000 Fixed Costs: $70,000 Total manufacturing costs $600,000 Instead of manufacturing their own leather seats, the company has the opportunity to buy them already finished from a vendor for $49/unit. If this is the case the company's fixed costs will decrease by 40%. Required (8 Marks) A) Prepare an incremental analysis B) Advise which option the company should choose and why C) In a new situation, if the company purchased the leather seats instead of manufactures them they would have the opportunity to rent out the additional space to a vendor and earn income of $50,000. How would this change the incremental analysis from part A?
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