Pina Company must decide whether to make or buy some of its

Pina Company must decide whether to make or buy some of its components. The costs of producing 65,700 switches for its generators are as follows. Direct materials $31,000 Variable overhead $45,900 Direct labor $34,229 Fixed overhead $84,000 Instead of making the switches at an average cost o $2.97 $195,129 ÷ 65,700 fixed costs will be eliminated. the company has an opportunity to buy the switches at S2.71 per unit. If the company purchases the switches, all the variable costs and one-fourth of the Your answer is correct. Prepare an incremental analysis showing whether the company should make or buy the switches. (Ifamount decreases net income then enter the amount using elther a negative sign preceding the number e.g. -45 or Net Income Make Buy Increase (Decrease) Direct materials Direct labor Variable manufacturing costs Fixed manufacturing costs Purchase price Total cost 42 42 7804 17804 $195123 4104 45918 Pina Company will incur $85918 of additional costs ifi the switches Attempts: 3 of 5 used Would your answer be different if the released productive capacity will generate additional income of $50,12 or parentheses e.g. (45).) If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 Net Income Increase (Decrease) Make Buy Total Cost Total cost the answer is The analysis shows that net income will be Attempts: 0 of 5 used

Solution

b.

YES, the answer is different . the analysis shows that net income will be increased by $5,210.

	make	buy	net income increase (decrease)
total cost	195,129	241,047	- 45,918
opportunity cost	51,128	nil	51,128
total cost	246,257	241,047	5,210