Question 2 ((((( I need the answer for b only )))))
Wilma Company must decide whether to make or buy some of its
components. The costs of producing 68,300 switches for its
generators are as follows.
Question 2
Wilma Company must decide whether to make or buy some of its
components. The costs of producing 68,300 switches for its
generators are as follows.
Direct materials |
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$29,400 |
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Variable overhead |
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$45,700 |
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Direct labor |
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$42,336 |
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Fixed overhead |
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$82,000 |
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Instead of making the switches at an average cost of $2.92
($199,436 ÷ 68,300), the company has an opportunity to buy the
switches at $2.66 per unit. If the company purchases the switches,
all the variable costs and one-fourth of the fixed costs will be
eliminated.
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(a)
Prepare an incremental analysis showing whether the company should
buy the switches. (Enter negative amounts using either
a negative sign preceding the number e.g. -45 or parentheses e.g.
(45).)
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Make |
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Buy |
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Net Income
Increase (Decrease) |
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Direct materials |
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$ |
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$ |
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$ |
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Direct labor |
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Variable manufacturing costs |
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Fixed manufacturing costs |
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Purchase price |
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Total cost |
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$ |
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$ |
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$ |
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Wilma Company will incur $ of additional costs if it
buysmakes
the switches. |
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(b)
Would your answer be different if the released productive capacity
will generate additional income of $47,662? (Enter
negative amounts using either a negative sign preceding the number
e.g. -45 or parentheses e.g. (45).)
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Make |
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Buy |
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Net Income
Increase (Decrease) |
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Total Cost |
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$ |
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$ |
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$ |
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Opportunity cost |
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Total cost |
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$ |
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$ |
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$ |
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Yes/No
, the answer is
different/same
. The analysis shows that net income will be
increased/decreased
by $ . |
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Instead of making the switches at an average cost of $2.92
($199,436 ÷ 68,300), the company has an opportunity to buy the
switches at $2.66 per unit. If the company purchases the switches,
all the variable costs and one-fourth of the fixed costs will be
eliminated.