Tamarisk Company must decide whether to make or buy some of its components. The costs of producing 60,000 switches for its generators are as follows.

Direct materials		$30,000		Variable overhead		$45,000
Direct labour		42,000		Fixed overhead		63,000

Instead of making the switches at an average cost of $3.00 ($180,000 60,000), the company has an opportunity to buy the switches at $2.80 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs will be eliminated.

Prepare an incremental analysis showing whether the company should make or buy the switches. (Round per unit answers to 2 decimal places, e.g. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).)

				Per Unit		Make		Buy		Net Income Increase (Decrease)
Number of units:		enter a number of units
select an item Cost of good soldTotal annual costVariable manufacturing costsManufacturing overheadPurchase priceFixed manufacturing costs				$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an item Manufacturing overheadPurchase priceCost of good soldTotal annual costFixed manufacturing costsVariable manufacturing costs				enter a dollar amount rounded to 2 decimal places		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an item Manufacturing overheadTotal annual costVariable manufacturing costsFixed manufacturing costsPurchase priceCost of good sold				enter a dollar amount rounded to 2 decimal places		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a closing name Manufacturing overheadFixed manufacturing costsPurchase priceCost of good soldTotal annual costVariable manufacturing costs						$enter a total amount		$enter a total amount		$enter a total amount

The company should select an option buymake the components.

Question Part Score

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Would your answer be different if the released productive capacity would generate additional income of $31,800?

If the released capacity can generate additional income of $31,800, then the company should select an option purchasemake

the components