winston company incremental analysis 501481

WinstonCompanymanufactured5,000 unitsofacomponentpartthatisused initsproductand incurredthe followingcosts:

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Directmaterials

35,000

Directlabor

25,000

Variablemanufacturingoverhead

20,000

Fixedmanufacturingoverhead

18,000

98,000

Anothercompanyhasofferedtosellthesamecomponenttothecompanyfor$17.50 perunit.The xed manufacturingoverheadconsistsmainlyofdepreciationonequipmentused tomanufacturethepartand wouldnotbereducedifthecomponentpartwaspurchasedfromtheoutside rm.Ifthecomponentpart is purchasedfromtheoutside rm, WinstonCompanyhastheopportunitytouse thefactoryequipment

toproduceanotherproductthatisestimatedtohaveacontributionmarginof$19,000

Instructions

Prepareanincrementalanalysisforthismakeorbuydecision.Shouldthecomponentbemadeor purchased?

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