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    Incremental Analysis Exercise

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    Hernandex, Inc., manufactures 3 models of picture frames for a total of 5,000 frames per year.
    The unit cost to produce a metal frame follows:

    Direct Materials $8.50
    Direct Labor $6.00
    Variable Overhead $2.00
    Fixed Overhead (70% unavoidable) $5.00
    Total $21.50

    A local company has offered to supply Hernandex the 5,000 metal frames it needs for $16 each.
    Instructions: Create an incremental analysis for the make or buy decision.

    Solution Template: (Note in dollars, not price per unit)
    Incremental cost to buy $-
    Incremental savings:
    Direct materials savings $-
    Direct labor savings $-
    Variable overhead savings $-
    Fixed overhead savings - avoidable portion $-
    Incremental savings if 'buy' decision is made $-


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    Solution Summary

    Excel file shows Incremental Analysis.