Glind Company manufactures 10,000 units of wheel sets for use in its annual prod

Question

Glind Company manufactures 10,000 units of wheel sets for use in its annual production. Costs are as follows: direct materials are $20,000; direct labor is $55,000; variable overhead is $45,000; and fixed overhead is $70,000. Ray's Company has offered to sell Glind 10,000 units of wheel sets for $18 per unit. If Glind accepts the offer, some of the facilities presently used to manufacture wheel sets could be rented to a third party at an annual rental of $15,000. Additionally, $4 per unit of the fixed overhead applied to wheel sets would be totally eliminated.

Requirements: Prepare an incremental analysis schedule to demonstrate if Glind should accept Ray's offer.

Explanation / Answer

Incremental analysis schedule

Manufacture

Purchase

Increase / (Decrease) in income

Direct materials Costs

$          20,000

$                          -  

$                            20,000

Direct labor Costs

$          55,000

$                          -  

$                            55,000

Variable overhead Costs

$          45,000

$                          -  

$                            45,000

Fixed overhead Costs

$          70,000

$                30,000

$                            40,000

(70000-10000*4)

Purchase costs of Wheel sets (10000*18)

$              180,000

$                        (180,000)

Rent on facility

$                   -  

$              (15,000)

$                            15,000

Net Decrease in Income

$                            (5,000)

If we accept the Ray's Company offer to purchase wheel sets, we have to incurred loss of 5000,

hence it is better to manufacture wheel sets.

Incremental analysis schedule

Manufacture

Purchase

Increase / (Decrease) in income

Direct materials Costs

$          20,000

$                          -  

$                            20,000

Direct labor Costs

$          55,000

$                          -  

$                            55,000

Variable overhead Costs

$          45,000

$                          -  

$                            45,000

Fixed overhead Costs

$          70,000

$                30,000

$                            40,000

(70000-10000*4)

Purchase costs of Wheel sets (10000*18)

$              180,000

$                        (180,000)

Rent on facility

$                   -  

$              (15,000)

$                            15,000

Net Decrease in Income

$                            (5,000)

If we accept the Ray's Company offer to purchase wheel sets, we have to incurred loss of 5000,

hence it is better to manufacture wheel sets.

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.