Question

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Do It! Review 7-3 (Part Level Submission) Flint Company must decide whether to make or buy some of its components. The costs of producing 62,600 switches for its generators are as follows. Direct materials $29,000 Direct labor $28,644 Variable overhead $44,400 Fixed overhead $82,000 Instead of making the switches at an average cost of $2.94 ($184,044 = 62,600), the company has an opportunity to buy the switches at $2.69 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 partially correct. Try again. Prepare an incremental analysis showing whether the company should make or buy the switches. (If amount decreases net income then enter the amount using elther a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Buy Net Income Increase (Decrease) Make 29000 Direct materials T 29000 Direct labor 28644 28644 Variable manufacturing costs 44400 44400 Fixed manufacturing costs 82000 T 37600 Purchase price Total cost 184044 Flint Company will incur $ of additional costs if it buys the switches LINK TO TEXT Attempts: 6 of 15 used SAVE FOR LATER SAVE FOR LATER Attempts: 6 of 15 used SUBMIT ANSWER SUMMIT ANSWER

Answer 1

Solution

	Make	Buy	Increase (Decrease) in income
Direct material	$ 29,000		$          29,000.00
Direct labor	$ 28,644		$          28,644.00
Variable Overheads	$ 44,400		$          44,400.00
Fixed overhead	$ 82,000	$ 61,500	$          20,500.00
Purchase price		$ 168,394	$     (168,394.00)
Total relevant Cost	$ 184,044	$ 229,894	$       (45,850.00)

Flint company will incur 45,850 of additional cost if buys the switch.