Juanita Company must decide whether to make or buy some of its components for the
appliances it produces. The costs of producing 166,000 electrical cords for its appliances
are as follows.

Instead of making the electrical cords at an average cost per unit of $1.00 ($166,000 4
166,000), the company has an opportunity to buy the cords at $0.90 per unit. If the
company purchases the cords, all variable costs and one-fourth of the fixed costs will be
eliminated.
(a) Prepare an incremental analysis showing whether the company should make or buy
the electrical cords. 

(b) Will your answer be different if the released productive capacity
will generate additional income of $5,000?

Transcribed Image Text:

Direct materials Direct labor $90,000 $20,000 Variable overhead Fixed overhead $32,000 $24,000