Response to the following problem:
Rubble Company must decide whether to make or buy some of its compo-nents. The costs of producing 60,000 switches for its generators are as follows.Direct materials $30,000 Variable overhead $45,000Direct labor $42,000 Fixed overhead $60,000Instead of making the switches at an average cost of $2.95 ($177,000 4 60,000), the com-pany has an opportunity to buy the switches at $2.70 per unit. If the company purchasesthe switches, all the variable costs and one-fourth of the fi xed costs will be eliminated.
(a) Prepare an incremental analysis showing whether the company should make or buy the switches.
(b) Would your answer be different if the released productive capacity willgenerate additional income of $30,000?