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Question - Wilma Company must decide whether to make or buy some of its components. The costs of producing 63,800 switches for its generators are as follows.
Direct materials $29,300
Variable overhead $44,200
Direct labor $30,634
Fixed overhead $82,800
Instead of making the switches at an average cost of $2.93 ($186,934 ÷ 63,800), the company has an opportunity to buy the switches at $2.74 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.
Required - Prepare an incremental analysis showing whether the company should make or buy the switches.
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