crane company manufactured 6,240 units of a component part that is used in its product and incurred the following costs: direct materials $36,400 direct labor 15,600 variable manufacturing overhead 10,400 fixed manufacturing overhead 20,800 $83,200 another company has offered to sell the same component part to the company for $13 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, crane company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $22,880. prepare an incremental analysis report for crane company which can serve as informational input into this make or buy decision. (enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). do not leave any field blank. enter 0 for the amounts.)

Respuesta :

The preparation of an incremental analysis report for Crane Company for the make-or-buy decision is as follows:

Incremental Analysis:

                                                Make          Buy

Direct materials     $36,400

Direct labor              15,600

Variable overhead  10,400

Total variable costs           $62,400      $81,120

Contribution margin                             (22,800)

Total incremental costs    $62,400    $58,320

Incremental benefits of outsourcing = $4,080

What is a make-or-buy decision?

A make-or-buy decision is an outsourcing decision that considers the profitability of manufacturing or providing some goods or services internally in contrast to external production or outsourcing.

Every make-or-buy decision must be based on relevant costs.  Relevant costs are costs that impact a decision.

Incremental analysis reports present the relevant costs and benefits in make-or-buy decisions.

The number of units manufactured = 6,240

Production costs:

Direct materials     $36,400

Direct labor              15,600

Variable overhead  10,400

Total variable costs           $62,400

Fixed overhead     20,800

Total costs =        $83,200

Outside supplier's price per unit = $13

Contribution margin = $22,800

Incremental benefits of outsourcing vis-a-vis internal production = $4,080 ($58,320 - $62,400)

Thus, in this make-or-buy decision, we can advise Crane Company to outsource the manufacturing of the component to the outside supplier, given the incremental benefits of $4,080.

Learn more about make-or-buy decisions at https://brainly.com/question/15304126

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