ABC Company has been manufacturing its own products. The company is currently operating at 100% of capacity, and fixed manufacturing overhead is 105,000. The direct materials and direct labor cost per unit to make the products are $4 and S5 respectively. Normal production is 30,000 units per year. A supplier offers to make the product at a price of $12.75 per unit. If ABC Company. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed manufacturing overhead currently being charged to the product will have to be absorbed by other products. 3. Prepare the incremental analysis for the decision to make or buy the products. 4. Should ABC company make or buy the products.
ABC Company has been manufacturing its own products. The company is currently operating at 100% of capacity, and fixed manufacturing overhead is 105,000. The direct materials and direct labor cost per unit to make the products are $4 and S5 respectively. Normal production is 30,000 units per year. A supplier offers to make the product at a price of $12.75 per unit. If ABC Company. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed manufacturing overhead currently being charged to the product will have to be absorbed by other products. 3. Prepare the incremental analysis for the decision to make or buy the products. 4. Should ABC company make or buy the products.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:ABC Company has been manufacturing its own products. The company is currently operating at
100% of capacity, and fixed manufacturing overhead is 105,000. The direct materials and direct
labor cost per unit to make the products are $4 and S5 respectively. Normal production is 30,000
units per year.
A supplier offers to make the product at a price of $12.75 per unit. If ABC Company. accepts the
supplier's offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed
manufacturing overhead currently being charged to the product will have to be absorbed by other
products.
3. Prepare the incremental analysis for the decision to make or buy the products.
4. Should ABC company make or buy the products.
Cost types
Make
Buy
Net Income Increase/ Decrease
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