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    Incremental Analysis for Decision Making

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    (a) Prepare the incremental analysis for the decision to make or buy the lamp shades.

    We will calculate the cost of making the lamp shades:
    Here we will consider all the relevant costs. In this case the relevant costs are variable costs and hence we will not consider fixed costs:
    =Material cost+ Labor cost+ Overheads
    =5+6+70%*6
    =$15.2 per unit
    This is less than cost of buying, hence the Company should manufacture the lamps.

    (b) Should Stahl Inc. buy the lamp shades?
    Manufacturing cost is less than cost of buying, hence the Company should manufacture the lamps.

    (c) Would the answer be different in (b) if the productive capacity released by not making the lamp shades could be used to produce income of $35,000?
    Let us calculate the Net Income by buying in this case:

    Net Income= Additional Income - Additional cost
    =35000-(30000*$.3)
    =$26000
    Note:
    We have taken additional cost of buying as $15.5-$15.2=$.3
    Hence one can go for buying in this case as there is a Net income of $26000.

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    https://brainmass.com/business/accounting/incremental-analysis-184481

    Solution Preview

    (a) Prepare the incremental analysis for the decision to make or buy the lamp shades.

    We will calculate the cost of making the lamp shades:
    Here we will consider all the relevant costs. In this case the relevant costs are variable costs and hence we ...

    Solution Summary

    The solution prepares an incremental analysis for the decision to make or buy the lamp shades.

    $2.19