DO IT! 26-26 Wilma Company must decide whether to make or buy some of its compo- nents. The costs of producing 60,000 switches for its generators are as follows. Variable overhead Fixed overhead Direct materials $30,000 $42,000 $45,000 $60,000 Direct labor Instead of making the switches at an average cost of $2.95 ($177,000 + 60,000), the com- pany has an opportunity to buy the switches at $2.70 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. (a) Prepare an incremental analysis showing whether the company should make or buy the switches. (b) Would your answer be different if the released productive capacity will generate additional income of $34,000?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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DO IT! 26-26 Wilma Company must decide whether to make or buy some of its compo-
nents. The costs of producing 60,000 switches for its generators are as follows.
E
Direct materials
Direct labor
$30,000
$42,000
$45,000
$60,000
Variable overhead
Fixed overhead
Instead of making the switches at an average cost of $2.95 ($177,000 + 60,000), the com-
pany has an opportunity to buy the switches at $2.70 per unit. If the company purchases
the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.
(a) Prepare an incremental analysis showing whether the company should make or buy
the switches. (b) Would your answer be different if the released productive capacity will
generate additional income of $34,000?
Transcribed Image Text:DO IT! 26-26 Wilma Company must decide whether to make or buy some of its compo- nents. The costs of producing 60,000 switches for its generators are as follows. E Direct materials Direct labor $30,000 $42,000 $45,000 $60,000 Variable overhead Fixed overhead Instead of making the switches at an average cost of $2.95 ($177,000 + 60,000), the com- pany has an opportunity to buy the switches at $2.70 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. (a) Prepare an incremental analysis showing whether the company should make or buy the switches. (b) Would your answer be different if the released productive capacity will generate additional income of $34,000?
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