Prepare incremental analysis for decision

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Reference no: EM1376620

Schopp Inc. has been manufacturing its own shades for its table lamps. The company is presently operating at 100 percent of capacity, and variable manufacturing overhead is charged to production at the rate of 50 percent of direct labor cost. The direct materials and direct labor cost per unit to make lamp shades are $3.77 and $4.50, correspondingly. Normal production is 28,900 table lamps per year.

A supplier provides to make the lamp shades at a price of $13.30 per unit. If Schopp Inc. accepts the supplier's offer, all variable manufacturing costs may be eliminated, but the $45,270 of fixed manufacturing overhead presently being charged to the lamp shades will have to be absorbed by other products.

Prepare incremental analysis for decision to make or buy lamp shades.

Make Buy Net Income
Increase (Decrease)
Direct materials $ $ $
Direct labor
Variable overhead costs
Fixed manufacturing costs
Purchase price
Total annual cost $ $ $

Reference no: EM1376620

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