Lesson: Incremental Analysis

330.000 Problem: Sonya TV Company makes television sets. Part of the components of the television set is the internal power surge which is being manufactured by the company with the following costs. The cost to manufacture 3,000 units are as follows: Direct materials P1,200.000 Direct labor 777,000 Variable manufacturing overhead 468.000 Fixed manufacturing overhead Total manufacturing costs P2,775,000 Total cost per unit P 925 Instead of making its own power surge, the Company can purchase it at P890 per unit. Purchasing of the power surge will eliminate all variable costs and 60% of fixed costs. In addition, the released capacity can produce 1,000 units of other product with an income of P160 per unit. Determine the following if the company will choose to buy the power surge: 1. How much is the manufacturing variable cost? 2. How much is the manufacturing fixed cost? 3. How much is the purchase price of the power surge? 4. How much is the total costs to be incurred by the company in choosing the option to buy the power surge? 5. If the company chooses to continue making the product, how much is the total cost? In the analysis of costs between Make or Buy, determine the following: 6. What option should the company choose if opportunity cost is considered? (Write Make or Buy on your answer). 7. How much is the difference between the two options