Reference no: EM133001137

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 :

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

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

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