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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.

$2.19