Calvin Company manufactures its own subassembly units known by the code name “ekrob.” Calvin incurs the following annual costs in producing 40,000 ekrobs:
| Direct materials Don't use plagiarized sources. Get Your Custom Essay on prepare an incremental analysis to determine whether calvin should make or buy ekrob 609018 Get an essay WRITTEN FOR YOU, Plagiarism free, and by an EXPERT! Just from $10/Page | $ 60,000 |
| Direct labor | 90,000 |
| Variable overhead | 50,000 |
| Fixed overhead | 80,000 |
| Total | $280,000 |
Calvin can purchase the ekrobs from Hobbes Corporation for $6.00 per unit. If they purchase the ekrobs, only $30,000 of the fixed overhead will be eliminated. However, the vacant factory space can be used to increase production of another product, which would generate annual income of $22,000.
Instructions
Prepare an incremental analysis to determine whether Calvin should make or buy ekrobs.
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