Craft Corporation produces a single product. Last year, the company had a net operating income of $90,560 using absorption costing and $80,900 using variable costing. The fixed manufacturing overhead cost was $6 per unit. There were no beginning inventories. If 28,500 units were produced last year, then sales last year were:
a. 18,840 units
b. 26,890 units
c. 30,110 units
d. 38,160 units
Rubble Company must decide whether to make or buy some of its components. The costs of producing 67,300 switches for its generators are as follows.
| Direct materials | $29,060 | Variable overhead | $45,120 |
| Direct labor | $46,734 | Fixed overhead | $79,640 |
Instead of making the switches at an average cost of $2.98 ($200,554 – 67,300), the company has an opportunity to buy the switches at $2.69 per unit. If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be eliminated.
Prepare an incremental analysis.
