A manufacturer produces hacksaw blades. recently, the manufacturer has decided to enhance its product line and offer band blades. two alternatives are being analyzed: purchase band blades overseas or produce them in-house. if the band blades are made in-house, the manufacturer will not be able to produce hacksaw blades, forgoing a $30,000 profit contribution. revenue from sale of band blades $180,000 outside purchase 170,000 direct material and labor 100,000 variable manufacturing overhead 50,000 avoidable fixed manufacturing overhead 10,000 calculate the incremental cost of making and purchasing band blades, respectively.

Question

Rose Davis

Business

20 August, 17:19

A manufacturer produces hacksaw blades. recently, the manufacturer has decided to enhance its product line and offer band blades. two alternatives are being analyzed: purchase band blades overseas or produce them in-house. if the band blades are made in-house, the manufacturer will not be able to produce hacksaw blades, forgoing a $30,000 profit contribution. revenue from sale of band blades $180,000 outside purchase 170,000 direct material and labor 100,000 variable manufacturing overhead 50,000 avoidable fixed manufacturing overhead 10,000 calculate the incremental cost of making and purchasing band blades, respectively.

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Answers (1)

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Nathaly Barajas · Answer 1

Answer: The options are given below:

A. $20,000 $40,000

B. 20,000 $10,000

C. $160,000 $170,000

D. $190,000 $170,000

The correct option is D. $190,000 $170,000

Explanation:

The incremental cost of making the band blades is calculated as follows:

=> $30,000 forgone profit contribution

+

$10,000 avoidable fixed manufacturing overhead

+

$100,000 direct material and labor

+

$50,000 variable manufacturing overhead

= $190,000

While The incremental cost of purchasing the band blades is the $170,000 outside purchase cost.

Therefore, we have:

$190,000 $170,000. Option D