Answer:
Wilma Company should produce internally as this will savings of $42,000.
Explanation:
For a make or buy decision the relevant cash flows include
1. the differential variable of the two options
2. savings from avoidable fixed costs associated with internal production
Incremental analysis $
External cost of purchase($2.65 × 60,000) 159000
Variable cost - (29,000 + 44,000 + 25,000) = <u>98000
</u>
Extra variable cost of external purchase (61000
)
Savings in Avoidable fixed cost (1/4× 76,000) <u>19,000
</u>
<em>Net extra cost of external purchase </em><em><u> (42000
)</u></em>
Wilma Company should produce internally as this will savings of $42,000.