wilma Company must decide whether to make or buy some of its components. The cos

Question

wilma Company must decide whether to make or buy some of its components. The costs of produding 67,200 switches for its generators are as follows. Direct materials $30,200 Variable overhead $45,900 Direct labor 38,252 Fixed overhead $81,200 Instead of making the switches at an average cost of $2.91 ($195,552 ÷ 67,200), the company has an opportunity to buy the switches at $2.67 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 Make Buy Increase (Decrease) Direct materials Direct labor Variable manufacturing costs Fixed manufacturing costs Purchase price Total cost Wilma Company will incur $ of additional costs if it the switches. Would your answer be different if the released productive capacity will generate additional income of $48,952? (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g Net Income Make Buy Increase (Decrease) Total Cost Opportunity cost Total cost ,the answer is The analysis shows that net income will be by $

Explanation / Answer

Wilma Company will incur $44772 of additional costs if it buys the switches.

Yes, the answer is different. The analysis shows that net income will be lower by $4180.

Make Buy Net Income Increase (Decrease) Direct materials 30200 0 30200 Direct labor 38252 0 38252 Variable manufacturing costs 45900 0 45900 Fixed manufacturing costs 81200 60900 20300 Purchase price (67200 x $2.67) 0 179424 -179424 Total cost 195552 240324 -44772

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