RSW Company manufactures 10,000 units of wheel sets for use in its annual produc
ID: 2484909 • Letter: R
Question
RSW 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. Rayco Company has offered to sell RSW 10,000 units of wheel sets for $18 per unit. If RSW 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 RSW should accept Rayco's offer.
Explanation / Answer
There is a loss of $5,000 ,RSW should accept Rayco's offer.
Make $ Buy $ Incremental Savings /(loss) Direct material (20,000) 20,000 Direct Labour (55,000) 55,000 Variable Overhead (45,000) 45,000 Fixed Overhead (70,000) (70,000) - Purchase price (10,000 units * $18 ) (180,000) (180,000) Facility Rent 15,000 15,000 Fixed Overhead savings (10,000 units * $4) 40,000 40,000 Total Cost (190,000) (195,000) (5,000)Related Questions
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