Sheridan Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 11,800 of these toy pets is as follows:

Direct materials ($30 per pet)		$354,000
Direct labour ($30 per pet)		354,000
Variable overhead ($10 per pet)		118,000
Allocated fixed overhead ($25 per pet)		295,000
Total		$1,121,000

Sheridan Pets is approached by Sunland Inc., which offers to make the toy pets for $81 per unit. Using incremental analysis, determine whether Sheridan Pets should accept this offer under each of the following independent assumptions:

Prepare an incremental analysis. Assume that $106,200 of the fixed overhead cost (in making 11,800 of the toy pets) is avoidable. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)

Cost		Make		Buy		Cost (Saving)
select an item Variable overheadSalesDirect labourDirect materialsNet income / (loss)Fixed overheadPurchase price		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Net income / (loss)Purchase priceDirect materialsDirect labourVariable overheadSalesFixed overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item SalesDirect labourNet income / (loss)Direct materialsVariable overheadPurchase priceFixed overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Direct materialsSalesPurchase priceFixed overheadDirect labourNet income / (loss)Variable overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Variable overheadSalesNet income / (loss)Direct labourFixed overheadPurchase priceDirect materials		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total annual cost		$enter a total amount		$enter a total amount		$enter a total amount

Should Sheridan Pets continue to make the pets or buy the pets?

Sheridan Pets should select an option buycontinue to make the pets.

Question Part Score

--/7

Prepare an incremental analysis. Assume that none of the fixed overhead is avoidable. However, if the pets are purchased from Sunland, Sheridan Pets can use the released productive resources to generate additional income of $189,300. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be included in both options when solving this problem.)

Cost		Make		Buy		Cost (Saving)
select an item Direct materialsVariable overheadDirect labourSalesNet incomeFixed overheadPurchase price		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Fixed overheadSalesNet incomeDirect materialsVariable overheadDirect labourPurchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Variable overheadDirect materialsDirect labourFixed overheadNet incomePurchase priceSales		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Fixed overheadPurchase priceDirect materialsNet incomeSalesDirect labourVariable overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Direct materialsNet incomeSalesVariable overheadFixed overheadDirect labourPurchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total annual cost		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part
select between addition and deduction LessAdd: Opportunity cost		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total cost		$enter a total amount		$enter a total amount		$enter a total amount

Should Sheridan Pets continue to make the pets or buy the pets?

Sheridan Pets should select an option continue to makebuy the pets.