Question

Brief Exercise 169

Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the commercial clocks for Notson for $420 each. Notson needs 1,200 clocks annually. Notson has provided the following unit costs for its commercial clocks:

Direct materials		$100
Direct labor		140
Variable overhead		80
Fixed overhead (40% avoidable)		150

Prepare an incremental analysis which shows the effect of the make-or-buy decision. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Incremental Analysis				Incremental Effect
Cost to buyCost to makeSavings of direct materialSavings of variable overheadSavings of direct laborSavings of fixed overheadTotal cost savingsCost savingsIncremental net cost to buyIncremental net cost to make				$
Total cost savingsIncremental net cost to buySavings of direct laborCost to makeSavings of direct materialSavings of variable overheadCost to buyCost savingsSavings of fixed overheadIncremental net cost to make
Incremental net cost to make    Savings of direct material    Cost to make    Savings of fixed overhead    Total cost savings    Incremental net cost to buy    Cost to buy    Savings of direct labor    Cost savings    Savings of variable overhead		$
Total cost savings    Savings of direct labor    Cost to make    Savings of direct material    Savings of variable overhead    Savings of fixed overhead    Incremental net cost to buy    Incremental net cost to make    Cost to buy    Cost savings
Cost to make    Cost savings    Cost to buy    Incremental net cost to buy    Savings of variable overhead    Savings of direct material    Savings of direct labor    Savings of fixed overhead    Total cost savings    Incremental net cost to make
Savings of direct material    Savings of fixed overhead    Savings of variable overhead    Savings of direct labor    Total cost savings    Cost to make    Cost to buy    Cost savings    Incremental net cost to buy    Incremental net cost to make
Cost to buySavings of fixed overheadTotal cost savingsIncremental net cost to makeIncremental net cost to buyCost savingsSavings of direct materialCost to makeSavings of direct laborSavings of variable overhead
Savings of direct materialSavings of direct laborSavings of variable overheadSavings of fixed overheadTotal cost savingsIncremental net cost to buyIncremental net cost to makeCost to makeCost to buyCost savings				$

Answer 1

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