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Concordia University - COMM 305 Hernandez, Inc

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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.