Solution-Prepare an incremental analysis for the decision

Prepare an incremental analysis for the decision

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Reference no: EM133056045

Question - Oldman Inc. has been manufacturing its own lamp shades for its table lamps. The company is currently operating at 100% capacity. The direct materials cost is $ 5 per unit, the direct labor cost is $6 per unit and variable manufacturing costs are 40% of direct labor costs. Total fixed manufacturing costs are $500,000 per year. Normal production is 50,000 lampshades per year.

A supplier offers to make the lampshades at a price of $20 per unit. If Oldman Inc. accepts the offer all variable manufacturing costs would be 100% avoidable and $200,000 of the total fixed manufacturing costs would be unavoidable.

Required -

A. Prepare an incremental analysis for the decision to make or buy the lampshades.

B. Should Oldman make or buy the lampshades? What is the $ advantage?

C. Assume that if Oldman decides to buy the lampshades part of the factory space could be used to produce 10,000 other lighting products that would generate a contribution margin $15 per unit. Should Oldman make or buy the lampshades? Show your calculations.

Reference no: EM133056045

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Prepare an incremental analysis for the decision

Reference no: EM133056045

Reference no: EM133056045

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