Whipple Company manufactures widgets. Cates Manufacturing has approached Whipple

Question

Whipple Company manufactures widgets. Cates Manufacturing has approached Whipple with a proposal to sell the company widgets at a price of $160,000 for 100,000 units. Whipple is currently making these components in its own factory. The following costs are associated with this part of the process when 100,000 units are produced:

The manufacturing overhead consists of $32,000 of costs that will be eliminated if the components are no longer produced by Whipple. From Whipple's point of view, how much is the incremental cost or savings if the widgets are bought instead of made?

$8,000 incremental savings

$40,000 incremental cost

$40,000 incremental savings

$8,000 incremental cost

Direct material $ 62,000 Direct labor 58,000 Manufacturing overhead 80,000 Total $200,000

Explanation / Answer

$8,000 incremental savings

$8,000 incremental savings

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