Janna Parts Company manufactured 500 injectors that are used in its lawn mower engines and incurred the following costs:

Direct materials$ 50,000

Direct labour19,000

Variable manufacturing overhead30,000

Fixed manufacturing overhead 20,000

$119,000

A supplier has offered to sell the injectors to Janna Parts Co. for $200 each. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the gears were purchased from the outside firm. If the gears are purchased from the supplier, Janna has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $3,000.

Instructions

Prepare an incremental analysis report for Janna Parts Company which can serve as informational input into this make-or-buy decision.