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prepare an incremental analysis to determine whether calvin should make or buy ekrob 609018

Calvin Company manufactures its own subassembly units known by the code name “ekrob.” Calvin incurs the following annual costs in producing 40,000 ekrobs:

Direct materials

$ 60,000

Direct labor

90,000

Variable overhead

50,000

Fixed overhead

80,000

Total

$280,000

Calvin can purchase the ekrobs from Hobbes Corporation for $6.00 per unit. If they purchase the ekrobs, only $30,000 of the fixed overhead will be eliminated. However, the vacant factory space can be used to increase production of another product, which would generate annual income of $22,000.

Instructions

Prepare an incremental analysis to determine whether Calvin should make or buy ekrobs.

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