Ivanhoe Company must decide whether to make or buy some of its components. The costs of producing 59,100 switches for its generators are as follows.

Direct materials		$28,959		Variable overhead		$40,779
Direct labour		41,961		Fixed overhead		60,282

Instead of making the switches at an average cost of $2.91 ($171,981 59,100), the company has an opportunity to buy the switches at $2.71 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs will be eliminated.

Prepare an incremental analysis showing whether the company should make or buy the switches. (Round per unit answers to 2 decimal places, e.g. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number e.g.-15,000 or parenthesis, e.g. (15,000).)

				Per Unit		Make		Buy		Net Income Increase (Decrease)
Number of units:		enter a number of units
select an item Manufacturing overhead fixed manufacturing costs Cost of good sold Variable manufacturing costs Purchase price Total annual cost				$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Total annual cost Purchase price Cost of good sold Fixed manufacturing costs Variable manufacturing costs Manufacturing overhead				enter a dollar amount rounded to 2 decimal places		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Cost of good sold Purchase price Fixed manufacturing costs Manufacturing overhead Total annual cost Variable manufacturing costs				enter a dollar amount rounded to 2 decimal places		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a closing name Cost of good sold Fixed manufacturing costs Total annual cost Purchase price Variable manufacturing costs Manufacturing overhead						$enter a total amount		$enter a total amount		$enter a total amount

The company should select an option make buy the components.

Question Part Score

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Would your answer be different if the released productive capacity would generate additional income of $30,768?

If the released capacity can generate additional income of $30,768, then the company should select an option purchase make

the components.