Wilma Company must decide whether to make or buy some of its components. The cos
ID: 2480352 • Letter: W
Question
Wilma Company must decide whether to make or buy some of its components. The costs of producing 62,600 switches for its generators are as follows.
Instead of making the switches at an average cost of $2.94 ($184,044 ÷ 62,600), the company has an opportunity to buy the switches at $2.69 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.
Prepare an incremental analysis showing whether the company should buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Net Income
Increase (Decrease)
Wilma Company will incur $_________________________of additional costs if it (buys/makes) the switches.
Direct materials $29,000 Variable overhead $44,400 Direct labor $28,644 Fixed overhead $82,000Explanation / Answer
Particulars Make Buy Net Income Increase(Decrease) Direct material 29000 0 29000 Direct Labour 28644 0 28644 Variable manufacturing costs 44400 0 44400 Fixed manufacturing costs 82000 61500 20500 Purchase of switches 0 168394 -168394 Total Cost 184044 229894 -45850 Wilma Company will incur $ 45850 of additional costs if it buys the switches
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