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28 August, 18:25

Parks Corporation currently manufactures 3,000 staplers annually for its main product. The costs per stapler are as follows: Direct materials $ 3 Direct labor 7 Variable overhead 4 Fixed overhead 7 Total $ 21 Gallup Company has contacted Parks with an offer to sell it 3,000 staplers for $18 each. $5 of the fixed overhead per unit is unavoidable. Prepare an incremental analysis for the make-or-buy decision.

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  1. 28 August, 21:18
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    Solution and Explanation:

    The following is the incremental analysis for the make - or the buy decision to be made by the Parks corporation based on the data given in the question

    Incremental cost to buy - 54000 = 3000 multiply with 18

    Incremental savings on direct materials 9000 = 3000 multiply with 3

    Incremental savings on direct labor 21000 = 3000 multiply with7

    Incremental savings on variable overhead 12000 = 3000 multiply with4

    Incremental savings on fixed overhead 6000 = 3000 multiply with2

    Incremental net cost to buy - 6000
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