Generate an additional income

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Reference no: EM133022493

Junita Company must decide whether to make or buy some of its components for the appliances it produces. The costs of producing 166,000 electrical cords for its appliances are as follows. Direct Materials $90,000 Direct Labour $20,000 Fixed Overhead $24,000 Variable Overhead $32,000 The cost of making the electrical cords at an average cost per unit is $1.00 ($166,000 ÷ 166,000), the company has an opportunity to buy the cords at $0.90 per unit. If the company purchases the cords, all variable costs and one-fourth of the fixed costs will be eliminated.

Required:

a) Prepare an incremental analysis showing whether the company should make or buy the electrical cords.

b) Will your answer be different if the released productive capacity will generate an additional income of $5,000?

c) Explain the difference of conditions of a and b.

Reference no: EM133022493

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