Gold Dust Co. manufactures tablet PCs. The company is currently operating at capacity and has received an offer from one of its suppliers to make the 20,000 glass screens it needs for $26 each. Gold Dust’s costs to make the glass screen are $10 in direct materials and $8 in direct labor. Variable manufacturing overhead is 75 percent of direct labor. If Gold Dust accepts the offer, $48,000 of fixed manufacturing overhead currently being charged to the glass screens will have to be absorbed by other product lines.
1. Prepare an incremental analysis for the decision to make or buy the glass screens.
2. Should Gold Dust continue to manufacture the glass screens or should they purchase the screens from the supplier?
3. Would your answer to requirement 2 change if the capacity released by purchasing the glass screens allowed Gold Dust to record a profit of $38,000?