Winston Company manufactured 5000 units of a component part that is used in its product and incurred the following costs: $$\begin{array} { l r }
\text { Direct materials } & \$ 35,000 \
\text { Direct labor } & 25,000 \
\text { Variable manufacturing overhead } & 20,000 \
\text { Fixed manufacturing overhead } & 18,000 \
& \underline { \$ 98,000 }
\end{array}$$ Another company has offered to sell the same component part to the company for $17.50 per unit. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the component part was purchased from the outside firm. If the component part is purchased from the outside firm Winston Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $19000.
Instructions
Prepare an incremental analysis report for Winston Company which can serve as informational input into this make or buy decision.

Question

Winston Company manufactured 5000 units of a component part that is used in its product and incurred the following costs: $$\begin{array} { l r } 
\text { Direct materials } & \$ 35,000 \
\text { Direct labor } & 25,000 \
\text { Variable manufacturing overhead } & 20,000 \
\text { Fixed manufacturing overhead } & 18,000 \
& \underline { \$ 98,000 }
\end{array}$$ Another company has offered to sell the same component part to the company for $17.50 per unit. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the component part was purchased from the outside firm. If the component part is purchased from the outside firm Winston Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $19000.
Instructions
Prepare an incremental analysis report for Winston Company which can serve as informational input into this make or buy decision.

Quizplus · Accepted Answer

The Answer of Winston Company manufactured 5000 units of a component part that is used in its product and incurred the following costs: $$\begin{array} { l r } 
\text { Direct materials } & \$ 35,000 \
\text { Direct labor } & 25,000 \
\text { Variable manufacturing overhead } & 20,000 \
\text { Fixed manufacturing overhead } & 18,000 \
& \underline { \$ 98,000 }
\end{array}$$ Another company has offered to sell the same component part to the company for $17.50 per unit. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the component part was purchased from the outside firm. If the component part is purchased from the outside firm Winston Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $19000.
Instructions
Prepare an incremental analysis report for Winston Company which can serve as informational input into this make or buy decision.

Winston Company Manufactured 5000 Units of a Component Part That