Make-Versus-Buy Decision
Sports Equipment Unlimited makes and sells soccer goals and has sales of 20,000 units per year. The plant is operating at full capacity.
A potential supplier has approached Sports Equipment Unlimited and offered to supply the soccer goals at a finished cost of $31.50
per goal. If the company buys rather than manufactures, they will be able to eliminate 60% of fixed manufacturing costs by leasing
unused space. The current costs are as follows:
		Per Unit
Direct labor	200,000	10.00
Direct materials	247,000	12.35
Variable manufacturing overhead	60,000	3.00
Fixed manufacturing overhead	170,000	8.50
Total manufacturing cost	677,000	33.85
INSTRUCTIONS:
Prepare an incremental analysis for the decision to make or buy the soccer goals.
Show the cost of continuing to make and to buy the goals. Show the effect on net
income if they buy. Should Sports Equipment Unlimited buy the goals?
			Change in
	Make	Buy	Net Income
Direct labor		-	#VALUE!
Direct materials		-	#VALUE!
Variable manufacturing overhead		-	#VALUE!
Fixed manufacturing overhead		#VALUE!	#VALUE!
Purchase cost		630,000	#VALUE!
Total manufacturing cost	-	#VALUE!	#VALUE!
Sports Unlimited should continue to manufacture the goals, even though the unit cost is higher than
the purchase price. This is true because there will be some remaining fixed costs even if they buy.
As we see, the net income will fall by $21,000 if Lancaster buys the goals.