Question

Old Camp Company manufactures awnings for its own line of tents. The company is currently operating at capacity and has received an offer from one of its cliers to make the 14.000 mingained for $30 each. Old Camp's costs to make the wing are $20 in direct materials and $7 indirect labor. Variable manufacturing overhead is 80 percent of red labor Iron Camp acontecer 50.000 of feed manufacturing overhead currently being charged to the awnings will have to be absorbed by other product lines Required: 1. Complete the incremental analysis for the decision to make or buy the awnings in the table provided below Net Income Increase 2. Should Old Camp continue to manufacture the awnings or should they purchase the awnings from the supper? Purchase Manufacture 3. Assuming that the capacity released by purchasing the wings allowed Old Camp to record a proft of $22.000, should Old Camp continue to manufacture or purchase the awninga? Merutecture Purchase

Answer 1

	Make	Buy	net income increase (decrease)
direct materials ($20*14,000)	280,000	0	280,000
direct labor ($7*14,000)	98,000	0	98,000
variable OH (98,000*80%)	78,400	0	78,400
Fixed OH (not relevant)	0	0	0
purchase price (14,000*33)	0	462,000	(462,000)
Total	456,400	462,000	(5,600)

2.Manufacture.

(since $5600 is loss due to buying).

3.Purchase

(since the profit of $22,000 is greater than loss of 5600)