Reference no: EM133174776

Question - Buddy Pets has recently started to manufacture talking toy pets. The cost structure to manufacture 10,500 of these toy pets is as follows:

Direct materials ($31 per pet) $325,500

Direct labour ($25 per pet) 262,500

Variable overhead ($13 per pet) 136,500

Allocated fixed overhead ($23 per pet) 241,500

Total $966,000

Buddy Pets is approached by Maxum Inc., which offers to make the toy pets for $82 per unit.

Using incremental analysis, determine whether Buddy Pets should accept this offer under each of the following independent assumptions:

Prepare an incremental analysis. Assume that $126,000 of the fixed overhead cost (in making 10,500 of the toy pets) is avoidable.

Should Buddy Pets continue to make the pets or buy the pets?