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Wilma Company must decide whether to make or buy some of its components. The costs of producing 64,800 switches for its generators are as
Wilma Company must decide whether to make or buy some of its components. The costs of producing 64,800 switches for its generators are as follows. Direct materials $30,700 Variable overhead $44,900 Direct labor $34,552 Fixed overhead $83,600 Instead of making the switches at an average cost of $2.99 ($193,752 64,800), the company has an opportunity to buy the switches at $2.75 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. (a) Your answer is correct. Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy 30700 i Direct materials Direct labor 34552 i Variable manufacturing 44900 i costs Fixed manufacturing costs Purchase price i i Net Income Increase (Decrease) 30700 34552 i 44900 83600 i 62700 i 20900 178200 i -178200 Total cost $ 193752 $ 240900 i $ -47148 Wilma Company will incur $ 47148 of additional costs if it buys the switches.
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