Winston Company_Incremental analysis

$5.00

Description

WinstonCompanymanufactured5,000 unitsofacomponentpartthatisused in
itsproductand incurredthe followingcosts:

Directmaterials

35,000

Directlabor

25,000

Variablemanufacturingoverhead

20,000

Fixedmanufacturingoverhead

18,000

98,000

Anothercompanyhasofferedtosellthesamecomponenttothecompanyfor$17.50
per
unit.The?xed
manufacturingoverheadconsists
mainlyofdepreciationonequipmentused
to
manufacturethepartand
wouldnotbereduced
ifthecomponentpartwaspurchasedfromtheoutside?rm.If
thecomponentpart is purchasedfromtheoutside?rm, WinstonCompanyhastheopportunitytouse
the
factoryequipment

toproduce
anotherproductthatisestimatedtohaveacontributionmarginof$19,000

Instructions

Prepareanincrementalanalysisforthismakeorbuydecision.Shouldthecomponentbe
madeor purchased?

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