Question

A manufacturer produces hacksaw blades. recently, the manufacturer has decided to enhance its product line and offer band blades. two alternatives are being analyzed: purchase band blades overseas or produce them in-house. if the band blades are made in-house, the manufacturer will not be able to produce hacksaw blades, forgoing a $30,000 profit contribution. revenue from sale of band blades $180,000 outside purchase 170,000 direct material and labor 100,000 variable manufacturing overhead 50,000 avoidable fixed manufacturing overhead 10,000 calculate the incremental cost of making and purchasing band blades, respectively.

Answer 1

Answer: The options are given below:

A. $20,000 $40,000

B. 20,000 $10,000

C. $160,000 $170,000

D. $190,000 $170,000

The correct option is D. $190,000 $170,000

Explanation:

The incremental cost of making the band blades is calculated as follows:

=> $30,000 forgone profit contribution

+

$10,000 avoidable fixed manufacturing overhead

+

$100,000 direct material and labor

+

$50,000 variable manufacturing overhead

= $190,000

While The incremental cost of purchasing the band blades is the $170,000 outside purchase cost.

Therefore, we have:

$190,000 $170,000. Option D