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Q3. The Iron Refrigerator Company purchases and installs defrost clocks in its products. The clocks...

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Q3. The Iron Refrigerator Company purchases and installs defrost clocks in its products. The clocks cost \$144 per case and each case contains twelve clocks. The supplier recently gave advance notice that, effective in 30 days, the price will rise by 50 percent. The company has idle equipment that, with only a few minor changes, could be used to produce similar defrost clocks. Cost estimates have been prepared under the assumption that the company could make the product itself. Direct materials would cost $9.00 per clock. Direct labor would be 10 minutes per clock at a labor rate of $12.00 per hour. Variable manufacturing overhead would be $6.50 per clock. Fixed manufacturing overhead, which would be incurred under either alternative, would be $32,420 a year for depreciation and $234,000 a year for other costs. Production and usage are estimated at 75,000 clocks a year. (Assume that idle equipment cannot be used for any other purpose.) 1. Prepare an incremental analysis to determine whether the defrost clocks should be made within the company or purchased from the outside supplier at the higher price. 2. Compute the total unit cost to make one clock and to buy one clock after the price hike

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