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Prepare the incremental analysis for the decision

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ABC Company manufactures washing machine, they also make the switch for the machine too. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make the switch are $4,00 and $5.00 respectively. Normal production is 30,000 switches per year.

A supplier offers to make the switches at a price of $12.75 per unit. If ABC Company accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products.

Instructions:

Prepare the incremental analysis for the decision to make or buy the switches.

Reference no: EM133198355

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