Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the commercial...
Notson, Inc. produces several models of clocks. An outside
supplier has offered to produce the commercial clocks for Notson
for $420 each. Notson needs 1,200 clocks annually. Notson has
provided the following unit costs for its commercial
clocks:
| Direct materials | $100 | ||
| Direct labor | 140 | ||
| Variable overhead | 80 | ||
| Fixed overhead (40% avoidable) | 150 |
Prepare an incremental analysis which shows the effect of the make-or-buy decision.
Homework Answers
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| Please find below the answer | |||
| Statementshowing Computations | |||
| Paticulars | Make | Buy | Incremental |
| Direct Materials = 1200*100 | 120,000.00 | 120,000.00 | |
| Direct Materials = 1200*140 | 168,000.00 | 168,000.00 | |
| Variable Overhead = 1200*80 | 96,000.00 | 96,000.00 | |
| Relevant fixed overhead = 1200*150*40% | 72,000.00 | 72,000.00 | |
| Purchase cost = 1200*420 | 504,000.00 | (504,000.00) | |
| Total relevant cost | 456,000.00 | 504,000.00 | (48,000.00) |
| Make is better option | |||
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Notson, Inc. produces several models of clocks. An outside
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