Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $20 each. The company is considering making the switches internally at the following projected annual production costs:

The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $1,500 a month. If the company decides to make the parts, total costs will be:

$10,500 more than if the switches are purchased.

$30,500 more than if the switches are purchased.

$27,000 less than if the switches are purchased.

$20,000 less than if the switches are purchased.
 

Transcribed Image Text:

Unit-level material cost Unit-level labor cost Unit-level overhead Batch-level set-up cost (5,000 units per batch) Product-level supervisory salaries Allocated facility-level costs $ $ $ 3 2 1 $25,000 $37,500 $20,000 Unit-level material cost Unit-level labor cost Unit-level overhead Batch-level set-up cost (5,000 units per batch) Product-level supervisory salaries Allocated facility-level costs $ $ $ 3 2 1 $25,000 $37,500 $20,000

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Solution Incremental analysis Incremental analysis determines the benefit or loss from taking one c... View the full answer