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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. 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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