Barnes Company manufactured 6,000 units of a component part that is used in its product and incurred the following costs:
- Direct materials $35,000
- Direct labor 15,000
- Variable manufacturing overhead 10,000
- Fixed manufacturing overhead 20,000
- $80,000
Another company has offered to sell the same component part to the company for $12.00 per unit. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the component part was purchased from the outside firm. If the component part is purchased from the outside firm, Barnes Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $16,000.
Instructions
Prepare an incremental analysis report for Barnes Company which can serve as informational input into this make or buy decision.