Having just designed the Revolution Seating System, Current Designs must now decide whether to produce the seats internally or buy them from an outside supplier. The costs for Current Designs to produce the seats are as follows.

Direct materials		$22	/unit		Direct labor		$14	/unit
Variable overhead		$13	/unit		Fixed overhead		$20,000

Current Designs will need to produce 3,150 seats this year; 20% of the fixed overhead will be avoided if the seats are purchased from an outside vendor. After soliciting prices from outside suppliers, the company determined that it will cost $52 to purchase a seat from an outside vendor.

(a)

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Your answer is correct.

Prepare an incremental analysis showing whether Current Designs should make or buy the Revolution Seating System. (Enter decrease in net income then enter with a negative sign preceding the number or parenthesis, e.g. -15,000 or (15,000).)

		Make		Buy		Net Income Increase (Decrease)
Direct Materials		$		$		$
Direct Labor
Variable Manufacturing Costs
Fixed Manufacturing Costs
Purchase Price
Total Annual Cost		$		$		$

Current Designs should makebuy the Revolution Seating System.

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(b)

Would your answer in (a) change if the productive capacity released by not making the seats could be used to produce income of $16,000? (Enter decrease in net income then enter with a negative sign preceding the number or parenthesis, e.g. -15,000 or (15,000).)

		Make		Buy		Net Income Increase (Decrease)
Total Annual Cost		$		$		$
Opportunity Cost
Total Cost		$		$		$

Current Designs should makebuy the Revolution Seating System.