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.

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

Accounting Apr 09, 2021

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.

Expert Solution

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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