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Homework answers / question archive / Concordia University - COMM 305 Signa Corporation currently manufactures 17,000 staplers annually for its main product

Concordia University - COMM 305 Signa Corporation currently manufactures 17,000 staplers annually for its main product

Accounting

Concordia University - COMM 305

Signa Corporation currently manufactures 17,000 staplers annually for its main product. The costs per stapler are as follows:

Direct materials

$ 2.50

Direct labour

7.50

Variable overhead

3.00

Fixed overhead

  8.00

Total

$21.00

Darsel Company has contacted Signa with an offer to sell it 17,000 staplers for $19.00 each. $6 of the fixed overhead per unit is unavoidable. Prepare an incremental analysis for the make or buy decision.

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Answer: $68,000

 

Incremental cost to buy ($19.00 x 17,000 staplers)

($323,000)

Incremental savings on direct materials ($2.50 x 17,000)

+42,500

Incremental savings on direct labour ($7.50 x 17,000)

+127,500

Incremental savings on variable MOH ($3.00 x 17,000)

+51,000

Incremental savings on fixed MOH ([$8.00 – $6.00] x 17,000)

+34,000

Incremental net cost to buy

($68,000)

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