Posted: April 18th, 2016

What are thermos???

Make the
Thermostats Buy the
Thermostats Incremental
Analysis
Manufacturing costs for 80,000 thermostats:
(Click to select)Notes payableRent payableDirect laborDirect materialsAccounts payable $ $
(Click to select)Notes payableSalesDirect laborDirect materialDepreciation expense
Manufacturing overhead:
(Click to select)CashDepreciation expenseVariableSalesAccounts receivable $
(Click to select)Depreciation expenseFixedSalesAccounts receivableCash
(Click to select)Rent payableInterest expenseCommon stockCost to salesCost to purchase

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Totals $ $ $

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b. Assume that if thermostats are purchased from the outside source, the factory space previously used to produce thermostats can be used to manufacture an additional 6,000 heat-flow regulators per year. These regulators have an estimated contribution margin of $18 per unit. The manufacture of the additional heat-flow regulators would have no effect on fixed overhead. Would this new assumption change your recommendation as to whether to make or buy thermostats? In support of your conclusion, prepare a schedule showing the incremental cost or benefit of buying thermostats from the outside source and using the factory space to produce additional heat-flow regulators. (Leave no cells blank – be certain to enter “0” wherever required. Amounts to be deducted should be indicated with a minus sign. Omit the “$” sign in your response.)

Effect of alternative use of factory space:
Incremental benefit (cost) of buying thermostats from outside source (see part a) $
Add: Contribution margin of alternative use of factory space

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Incremental benefit of buying thermostats from an outside source and using factory space to produce additional heat-flow regulators $