Final answer:
The incremental cost for Mallory Company if it decides to buy the widgets instead of making them would be $6,000, indicating that it would be more expensive to buy the widgets.
Step-by-step explanation:
To determine the incremental cost or savings if Mallory Company buys widgets instead of making them, we must compare the total cost of purchasing the widgets with the costs saved by not manufacturing them in-house. The proposal from Bowden Company is to sell 100,000 units at a price of $82,000.
When producing these widgets, Mallory incurs direct material costs of $31,000, direct labor costs of $29,000, and manufacturing overhead of $40,000, for a total of $100,000. However, if Mallory stops production, it will save on some manufacturing overhead costs. Specifically, $16,000 of the manufacturing overhead would be eliminated.
Therefore, when considering whether to buy the widgets, Mallory should take into account the total purchasing cost of $82,000 plus the remaining overhead that would not be eliminated, which is $40,000 - $16,000 = $24,000. This gives a total cost of purchasing of $82,000 + $24,000 = $106,000. Comparing this to the current production cost of $100,000, the difference is $106,000 - $100,000 = $6,000. This means that buying the widgets would result in an incremental cost of $6,000 for Mallory Company.