Incremental Analysis

    Our company is deciding whether to make or buy a part of its product. The costs of producing 10,000 of these  parts are: Direct Materials                               
75,000 Direct Labor                        45,000 Variable Overhead          15,000 Fixed Overhead                                10,000

Instead of making these parts, our company has an opportunity to buy the parts at $14.00 per unit. If our company purchases the parts, all variable costs and one-half of the fixed costs will be eliminated.

1.          1. 
Prepare an incremental analysis showing whether our company should make or buy the parts.

1.          2. 
Would the answer be different if producing the units internally would generate additional income of $30,000?

 

PART B. For 3, use the information below:

One of our company’s product lines had a net loss of $50,000, made up of the following data:

Sales                                      800,000 Variable Expenses           550,000 Fixed Expenses                 300,000

If our company eliminates this product line, $30,000 of fixed costs will remain.

1.       Prepare an analysis showing whether our company should eliminate this product line.

   PA