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Pharoah Company must decide whether to make or buy some of its components. The costs of producing 63,800 switches for its generators are as follows. Direct materials Direct labor (a) Direct materials Direct labor $29,300 $30,634 Instead of making the switches at an average cost of $2.93 ($186,934÷63,800), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. Variable manufacturing costs Purchase price Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Fixed manufacturing costs Total cost $ Variable overhead $ Fixed overhead Pharoah Company will incur $ $44,200 $82,800 Make $ $ Buy of additional costs if it $ $ Net Income Increase (Decrease) the switches.

Pharoah Company must decide whether to make or buy some of its components. The costs of producing 63,800 switches for its generators are as follows. Direct materials Direct labor (a) Direct materials Direct labor $29,300 $30,634 Instead of making the switches at an average cost of $2.93 ($186,934÷63,800), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. Variable manufacturing costs Purchase price Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Fixed manufacturing costs Total cost $ Variable overhead $ Fixed overhead Pharoah Company will incur $ $44,200 $82,800 Make $ $ Buy of additional costs if it $ $ Net Income Increase (Decrease) the switches.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Pharoah Company must decide whether to make or buy some of its components. The costs of producing 63,800 switches for its generators are as follows. Direct materials Direct labor (a) Direct materials Direct labor $29,300 $30,634 Instead of making the switches at an average cost of $2.93 ($186,934÷63,800), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. Variable manufacturing costs Purchase price Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Fixed manufacturing costs Total cost $ Variable overhead $ Fixed overhead Pharoah Company will incur $ $44,200 $82,800 Make $ $ Buy of additional costs if it $ $ Net Income Increase (Decrease) the switches.
Transcribed Image Text:Pharoah Company must decide whether to make or buy some of its components. The costs of producing 63,800 switches for its generators are as follows. Direct materials Direct labor (a) Direct materials Direct labor $29,300 $30,634 Instead of making the switches at an average cost of $2.93 ($186,934÷63,800), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated. Variable manufacturing costs Purchase price Prepare an incremental analysis showing whether the company should make or buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Fixed manufacturing costs Total cost $ Variable overhead $ Fixed overhead Pharoah Company will incur $ $44,200 $82,800 Make $ $ Buy of additional costs if it $ $ Net Income Increase (Decrease) the switches.
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