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Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 50% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $3.90 and $5.00, respectively. Normal production is 27,900 table lamps per year. A supplier offers to make the lamp shades at a price of $13.10 per unit. If Schopp Inc. accepts the suppliers offer, all variable manufacturing costs will be eliminated, but the $42,730 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products.

Prepare the incremental analysis for the decision to make or buy the lamp shades. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Make Buy Net Income increase (Decrease)

Direct materials $_______ $_______ $_______

Direct Labor _______ _______ _______

Variable overhead costs _______ _______ _______

Fixed manufacturing costs _______ _______ _______ Purchase price _______ _______ _______ Total annual cost $_______ $_______ $_______

Would your answer be different in (b) if the productive capacity released by not making the lamp shades could be used to produce income of $61,946?

yes or no? income would increase or decrease? by $_____________

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