Question

Question 2 ((((( I need the answer for b only ))))) Wilma Company must decide whether...

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 $29,400 Variable overhead $45,700
Direct labor $42,336 Fixed overhead $82,000

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.

(a)

Your answer is correct.
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).)
Make Buy Net Income
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

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).)
Make Buy Net Income
Increase (Decrease)
Total Cost $ $ $
Opportunity cost
Total cost $ $ $

Yes/No

, the answer is

different/same

. The analysis shows that net income will be

increased/decreased

by $ .


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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