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10 August, 01:49

Marigold Company must decide whether to make or buy some of its components. The costs of producing 60,200 switches for its generators are as follows. Direct materials $29,500 Variable overhead $45,600 Direct labor $25,900 Fixed overhead $79,600 Instead of making the switches at an average cost of $3.00 ($180,600 : 60,200), the company has an opportunity to buy the switches at $2.74 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 s e. g.-45 or parentheses e. g. (45).)

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  1. 10 August, 01:51
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    Instructions are listed below-

    Explanation:

    Giving the following information:

    The costs of producing 60,200 switches for its generators are as follows:

    Direct materials $29,500 (29,500/60,200 = 0.49)

    Variable overhead $45,600 (45600/60200=0.76)

    Direct labor $25,900 (25900/60200 = 0.43)

    Fixed overhead $79,600 (79,600*0.25 = 19,900)

    Instead of making the switches at an average cost of $3.00 ($180,600 : 60,200), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.

    Make in house = (0.49 + 0.76 + 0.43) * 60,200 + 19,900 = $121,036

    We only have into account 25% of fixed costs that are avoidable.

    Outsource = 2.74*60,200 = $164,948

    It is cheaper to make in the house.
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