Doyle Company manufactured 6,000 units of a component part that is used in its p
ID: 2510386 • Letter: D
Question
Doyle Company manufactured 6,000 units of a component part that is used in its product and incurred the following costs:
Direct materials $35,000
Direct labor 15,000
Variable manufacturing overhead 10,000
Fixed manufacturing overhead 20,000
$80,000
Another company has offered to sell the same component part to the company for $13 per unit. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the component part was purchased from the outside firm. If the component part is purchased from the outside firm, Doyle Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $22,000.
Instructions
Prepare an incremental analysis report for Doyle Company which can serve as informational input into this make or buy decision. What should the company do?
Solution
Make
Buy
Increase(decrease)
Make
Buy
Increase(decrease)
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Make Buy Increase(decrease) Direct materials 35,000.00 35,000.00 Direct Labor 15,000.00 15,000.00 Variable manufacturing overhead 10,000.00 10,000.00 Purchase Cost = 6000*13 78,000.00 (78,000.00) Contribution (22,000.00) 22,000.00 Total Relevant cost 60,000.00 56,000.00 4,000.00 Company should buy as relevant cost is less in case of buy
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