Prepare the incremental analysis for the decision

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Question - Whispering Winds Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 50% of direct labour costs. The direct materials and direct labour costs per unit to make the lampshades are $4.70 and $5.60, respectively. Normal production is 48,800 table lamps per year.

A supplier offers to make the lampshades at a price of $13.50 per unit. If Whispering Winds Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $41,300 of fixed manufacturing overhead currently being charged to the lampshades will have to be absorbed by other products.

Required - Prepare the incremental analysis for the decision to make or buy the lampshades.

Reference no: EM133046650

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