SOLUTION BY CHARTERED ACCOUNTANT Barney Company must decide whether to make or buy some of its…

SOLUTION BY CHARTERED ACCOUNTANT

Barney Company must decide whether to make or buy some of its
components. The costs of producing 60,000 switches for its generators are as
follows.

Direct materials

$30,000

Variable overhead

$45,000

Direct labor

$42,000

Fixed overhead

$60,000

Instead of making the switches at an average cost of $2.95
($177,000 ÷ 60,000), the company has an opportunity to buy the switches at
$2.75 per unit. If the company purchases the switches, all the variable costs
and one-third of the fixed costs will be eliminated.

(a) Complete the incremental analysis showing whether the company
should make or buy the switches. (If an amount should be
blank, enter a zero. All boxes must be filled to be correct. If amount
decreases net income, use either a negative sign preceding the number e.g. -45
or parentheses e.g. (45).)

Make

Buy

Net Income

Increase