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
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 $-
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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Excel file shows Incremental Analysis.