WinstonCompanymanufactured5,000 unitsofacomponentpartthatisused initsproductand incurredthe followingcosts:
Directmaterials |
35,000 |
Directlabor |
25,000 |
Variablemanufacturingoverhead |
20,000 |
Fixedmanufacturingoverhead |
18,000 |
98,000 |
Anothercompanyhasofferedtosellthesamecomponenttothecompanyfor$17.50 perunit.The xed manufacturingoverheadconsistsmainlyofdepreciationonequipmentused tomanufacturethepartand wouldnotbereducedifthecomponentpartwaspurchasedfromtheoutside rm.Ifthecomponentpart is purchasedfromtheoutside rm, WinstonCompanyhastheopportunitytouse thefactoryequipment
toproduceanotherproductthatisestimatedtohaveacontributionmarginof$19,000
Instructions
Prepareanincrementalanalysisforthismakeorbuydecision.Shouldthecomponentbemadeor purchased?