Suppose Hewlett-Packard Company must decide whether to make or buy some of its components from Solectron Corp. The cost of producing 50,000 electrical connectors for its

printers is $110,000, broken down as follows.

Direct materials $60,000 Variable manufacturing overhead $12,000

Direct labor 30,000 Fixed manufacturing overhead 8,000

Instead of making the electrical connectors at an average cost per unit of $2.20 ($110,000 _

50,000), the company has an opportunity to buy the connectors at $2.15 per unit. If the

connectors are purchased, all variable costs and one-half of the fixed costs will be eliminated.

Instructions

A. Prepare an incremental analysis showing whether the company should make or buy the

electrical connectors.

B. Will your answer be different if the released productive capacity resulting from the

purchase of the connectors will generate additional income of $25,000?​