Answer:
Check the following calculations
Explanation:
1. Received an order for 1,000 units
Cost per unit = $46
now
Incremental revenue per widget = $43
Incremental cost per widget: =( Direct material + Direct Labor + Vairable manufacturing overhead) =
$7 + ($15 × 2) + $4 = 41
Incremental profit per unit = 43 - 41 = $2
Total incremental profit = $2 × 1,000 = $2,000
Kasten can make an extra $2,000
2. Cost to buy per widget = $39
Cost to make per widget: = ( Direct material + Direct Labor + Vairable manufacturing overhead) =
$7 + ($15 × 2) + $4 = 41
Incremental savings per widget if purchased =41 - 39 = $2
Total incremental savings if purchased = $2 × 10,000 = $20,000
Thus we can say Kasten will save $20,000 if it buys instead of makes
