Old Camp Company manufactures awnings for its own line of tents. The company is currently operating at capacity and has received an offer from one of its suppliers to make the 13,000 awnings it needs for $27 each. Old Camp’s costs to make the awning are $14 in direct materials and $7 in direct labor. Variable manufacturing overhead is 80 percent of direct labor. If Old Camp accepts the offer, $44,000 of fixed manufacturing overhead currently being charged to the awnings will have to be absorbed by other product lines. Required: 1. Complete the incremental analysis for the decision to make or buy the awnings in the table provided below. 2. Should Old Camp continue to manufacture the awnings or should they purchase the awnings from the supplier? purchase or manufacture 3. Assuming that the capacity released by purchasing the awnings allowed Old Camp to record a profit of $22,000, should Old Camp continue to manufacture or purchase the awnings? purchase or manufacture       Make Buy Net Income Increase (Decrease) Direct Materials       Direct Labor       Variable OH       Fixed OH       Purchase Price       Total

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Old Camp Company manufactures awnings for its own line of tents. The company is currently operating at capacity and has received an offer from one of its suppliers to make the 13,000 awnings it needs for $27 each. Old Camp’s costs to make the awning are $14 in direct materials and $7 in direct labor. Variable manufacturing overhead is 80 percent of direct labor. If Old Camp accepts the offer, $44,000 of fixed manufacturing overhead currently being charged to the awnings will have to be absorbed by other product lines.

Required:
1.
Complete the incremental analysis for the decision to make or buy the awnings in the table provided below.
2. Should Old Camp continue to manufacture the awnings or should they purchase the awnings from the supplier?

purchase or manufacture


3. Assuming that the capacity released by purchasing the awnings allowed Old Camp to record a profit of $22,000, should Old Camp continue to manufacture or purchase the awnings?

purchase or manufacture

 
 
  Make Buy Net Income Increase (Decrease)
Direct Materials      
Direct Labor      
Variable OH      
Fixed OH      
Purchase Price      
Total      
 
 
 
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