Wildhorse Company must decide whether to make or buy some of its components. The costs of producing 68,900 switches for its generators are as follows.
Direct materials $30,200 Variable overhead $44,600
Direct labor $46,455 Fixed overhead $82,000
Instead of making the switches at an average cost of $2.95 ($203,255 \div 68,900), the company has an opportunity to buy the switches at $2.66 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.
(a)
(b)
Would your answer be different if the released productive capacity will generate additional income of $45,899? (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Net Income
Make Buy Increase (Decrease)
Total Cost $ $ $
Opportunity cost
Total cost $ $ $
