Reference no: EM132659436

Suppose Jobelita Company must decide whether to make or buy some of its components from Jimboy Corporation. The cost of producing 50,000 electrical connectors for its printers is P110,000, broken down as follows:

Direct materials 60,000

Direct labor 30,000

Variable manufacturing overhead 12,000

Fixed manufacturing overhead 8,000

Instead of making the electrical connectors at an average cost per unit of P2.20, the company has an opportunity to buy the connectors at P2.15 per unit. If the connectors are purchased, all variable costs and one-half of the fixed costs will be eliminated.

Instructions:

Question 1. Make an incremental analysis showing whether the company should make or buy the electrical connectors.

Question 2. Will the answer of question 1 be different if the released productive capacity resulting from the purchase of the connectors will generate additional income of P25,000?