Parks Corporation currently manufactures 3,000 staplers annually for its main product. The costs per stapler are as follows: Direct materials $ 3 Direct labor 7 Variable overhead 4 Fixed overhead 7 Total $ 21 Gallup Company has contacted Parks with an offer to sell it 3,000 staplers for $18 each. $5 of the fixed overhead per unit is unavoidable. Prepare an incremental analysis for the make-or-buy decision.

Question

Lea Harrison

Business

1 February, 20:37

Parks Corporation currently manufactures 3,000 staplers annually for its main product. The costs per stapler are as follows: Direct materials $ 3 Direct labor 7 Variable overhead 4 Fixed overhead 7 Total $ 21 Gallup Company has contacted Parks with an offer to sell it 3,000 staplers for $18 each. $5 of the fixed overhead per unit is unavoidable. Prepare an incremental analysis for the make-or-buy decision.

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Answers (1)

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Zane Chan · Answer 1

Solution and Explanation:

The following is the incremental analysis for the make - or the buy decision to be made by the Parks corporation based on the data given in the question

Incremental cost to buy - 54000 = 3000 multiply with 18

Incremental savings on direct materials 9000 = 3000 multiply with 3

Incremental savings on direct labor 21000 = 3000 multiply with7

Incremental savings on variable overhead 12000 = 3000 multiply with4

Incremental savings on fixed overhead 6000 = 3000 multiply with2

Incremental net cost to buy - 6000