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Make or Buy Allen Corporation currently makes the nylon convertible top for its main product, a fiberglass boat designed especially for water skiing. The
Make or Buy Allen Corporation currently makes the nylon convertible top for its main product, a fiberglass boat designed especially for water skiing. The costs of producing the 1,500 tops needed each year follow: Nylon fabric Aluminum tubing Frame fittings $300,000 96,000 24,000 Direct labor 162,000 Variable manufacturing overhead 30,000 Fixed manufacturing overhead 152,000 Dustin Company, a specialty fabricator of synthetic materials, can make the needed tops of comparable quality for $430 each, F.O.B. shipping point. Allen would furnish its own trademark insignia at a unit cost of $16. Transportation in would be $28 per unit, paid by Allen Corporation. Allen's chief accountant has prepared a cost analysis that shows that only 20% of fixed overhead could be avoided if the tops are purchased. The tops have been made in a remote section of Allen's factory building, using equipment for which no alternate use is apparent in the foreseeable future. a. Prepare a differential analysis showing whether or not you would recommend that the convertible tops be purchased from Dustin Company. If appropriate, use a negative sign with your answer to represent a net disadvantage answer. Do not use negative signs with any other answers.
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