Ruelman Corporation currently manufactures 3,000 units of component XYZ annually for its main product. The costs per stapler are as follows:

Direct materials .........................................$ 4.00

Direct labor ................................................ 6.00

Variable overhead ...................................... 3.20

Fixed overhead ......................................... 7.00

Total ...........................................................$22.00

Dorie Company has contacted Ruelman with an offer to sell it 3,000 components of XYZ for $17.40 each. Sixty percent of the fixed overhead per unit is unavoidable.

Instructions

Prepare an incremental analysis for the make-or-buy decision.