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 materials $247,000 $12.35

Direct labor 200,000 10.00

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?

	Make	Buy	Change in Net Income
Direct materials	Amount	Amount	Amount
Direct labor	Amount	Amount	Amount
Variable manufacturing overhead	Amount	Amount	Amount
Fixed manufacturing overhead	Amount	Amount	Amount
Purchase cost	Amount	Amount	Amount
Total manufacturing cost	Amount	Amount	Amount

Should Sports Unlimited make or buy the goals?

Make or buy? Explain.