The management of Gill Corporation is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called FIZBE, is a component of the companys finished product. This information was collected for the year ending December 31, 2017.

1. 5,000 units of FIZBE were produced in the Machining Department.

2. Variable manufacturing costs applicable to the production of each FIZBE unit were:

direct materials $4.75, direct labor $4.60, indirect labor $0.45, utilities $0.35.

3. Fixed manufacturing costs applicable to the production of FIZBE were:

Cost Item		Direct		Allocated
Depreciation		$1,100		$ 900
Property taxes		500		200
Insurance		900		600
		$2,500		$1,700

All variable manufacturing and direct fixed costs will be eliminated if FIZBE is purchased.

Allocated costs will have to be absorbed by other production departments.

4. The lowest quotation for 5,000 FIZBE units from a supplier is $56,000.

5. If FIZBE units are purchased, freight and inspection costs would be $0.30 per unit, and receiving costs totaling $500 per year would be incurred by the Machining Department.

Instructions

(a) Prepare an incremental analysis for FIZBE. Your analysis should have columns for (1) Make FIZBE, (2) Buy FIZBE, and (3) Net Income Increase/Decrease.

(b) Based on your analysis, what decision should management make?

	Make	Buy	Net Income Increase or Decrease
Total Annual Cost

b) Decision ?