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Question - Maplewood Company must decide whether to make or buy some of its components. The costs of producing 60,100 switches for its generators are as follows.
Direct materials
$30,651
Variable overhead
$43,873
Direct labour
42,070
Fixed overhead
61,302
Instead of making the switches at an average cost of $2.96 ($177,896 ÷ 60,100), the company has an opportunity to buy the switches at $2.76 per unit. If the company purchases the switches, all the variable costs and one-third of the fixed costs will be eliminated.
Required - Prepare an incremental analysis showing whether the company should make or buy the switches.
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