Final answer:
To determine whether Blossom, Inc. should make or buy their commercial clocks, an incremental analysis shows they save $140,000 annually by making the clocks internally, with internal production costs at $380 per clock versus the supplier's offer of $480 per clock for 1,400 units.
Step-by-step explanation:
The student's question involves providing an incremental analysis for the make-or-buy decision faced by Blossom, Inc. regarding their commercial clocks. To do this, we compare the cost of making the clocks internally versus the cost of purchasing them from an outside supplier at $480 each, with a demand of 1,400 clocks annually.
Here is the cost breakdown for making clocks internally (per unit):
- Direct materials: $100
- Direct labor: $140
- Variable overhead: $80
- Fixed overhead (40% avoidable): $150
Fixed overhead is partially avoidable if clocks are not made internally. Therefore, 40% of the $150 fixed overhead, which is $60, can be saved. The avoidable cost per clock when making the clocks internally totals the sum of direct materials, direct labor, variable overhead, and avoidable fixed overhead, which comes to $100 + $140 + $80 + $60 = $380.
Next, we perform the incremental analysis:
- Cost to make: $380 per clock x 1,400 clocks = $532,000
- Cost to buy: $480 per clock x 1,400 clocks = $672,000
By comparing these two figures, Blossom, Inc. saves $672,000 - $532,000 = $140,000 annually by making the clocks internally as opposed to buying them externally.