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Buddy Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 13,800 of these toy pets is as follows:

Direct materials ($33 per pet)		$455,400
Direct labour ($28 per pet)		386,400
Variable overhead ($8 per pet)		110,400
Allocated fixed overhead ($22 per pet)		303,600
Total		$1,255,800

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

Prepare an incremental analysis. Assume that $151,800 of the fixed overhead cost (in making 13,800 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).)

Cost		Make		Buy		Cost (Saving)
Net income / (loss)Purchase priceVariable overheadFixed overheadDirect materialsSalesDirect labour		$		$		$
Net income / (loss)Variable overheadFixed overheadPurchase priceDirect labourSalesDirect materials
Purchase priceDirect labourSalesVariable overheadNet income / (loss)Direct materialsFixed overhead
Variable overheadFixed overheadDirect labourPurchase priceDirect materialsSalesNet income / (loss)
Purchase priceVariable overheadDirect materialsNet income / (loss)Fixed overheadSalesDirect labour
Total annual cost		$		$		$

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

Buddy Pets should continue to makebuy the pets.

Prepare an incremental analysis. Assume that none of the fixed overhead is avoidable. However, if the pets are purchased from Maxum, Buddy Pets can use the released productive resources to generate additional income of $221,900. (Enter savings with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).)

Cost		Make		Buy		Cost (Saving)
Variable overheadDirect materialsFixed overheadSalesPurchase priceNet incomeDirect labour		$		$		$
Direct labourPurchase priceFixed overheadVariable overheadDirect materialsNet incomeSales
Direct labourNet incomeVariable overheadDirect materialsSalesPurchase priceFixed overhead
Direct labourSalesVariable overheadPurchase priceFixed overheadDirect materialsNet income
Direct labourPurchase priceNet incomeSalesFixed overheadDirect materialsVariable overhead
Total annual cost
AddLess: Opportunity cost
Total cost		$		$		$

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

Buddy Pets should buycontinue to make the pets.