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Homework answers / question archive / Concordia University - COMM 305 Hernandez, Inc
Concordia University - COMM 305
Hernandez, Inc. manufactures 5 models of picture frames, for a total of 12,000 frames per year. The unit cost to produce a metal frame follows:
Direct Materials $ 4
Direct Labour 5
Variable Overhead 1
Fixed Overhead (60% unavoidable) 6
Total $16
A local company has offered to supply Hernandez the 12,000 metal frames it needs for
$12 each. Create an incremental analysis for the make or buy decision.
Answer: $4,800
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|
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Incremental cost to buy |
($144,000) |
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Incremental savings: |
|
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Direct materials savings |
+$48,000 |
|
Direct labour savings |
+60,000 |
|
Variable overhead savings |
+12,000 |
|
Fixed overhead savings - avoidable portion |
+28,800 |
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Incremental savings if 'buy' decision is made |
$4,800 |
