Question

Question 7 Maplewood Company must decide whether to make or buy some of its components. The costs of producing 61,000 switches for its generators are as follows. Direct materials Direct labour $30,500 42,090 Variable overhead Fixed overhead $57,950 60,390 Instead of making the switches at an average cost of $3.13 $190,930 = 61,000), the company has an opportunity to buy the switches at $2.93 per unit. If the company purchases the switches, all the variable costs and one-third 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. (Round per unit answers to 2 decimal places, e.g. 15.25. If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).) Net Income Increase (Decrease) Per Unit Make Buy Number of units: 61,000 Variable manufacturing costs 0.95 57,950 57,950 Fixed manufacturing costs 0.99 60,390 TPurchase price Total annual cost make The company should the components.

Answer 1

		Per unit	Make	Buy	Net Income Increase (Decrease)
Number of units:	61,000
Variable manufacturing costs		2.14	130,540	-	130,540
Fixed manufacturing costs		0.99	60,390	40,260	20,130
Purchase price		2.93	-	178,730	-178,730
Total annual cost			190,930	218,990	-28,060
The company should make the components