Exercise 20-8 Innova uses 1,020 units of the component IMC2 every month to manuf

Question

Exercise 20-8

Innova uses 1,020 units of the component IMC2 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows.

Overhead costs include variable material handling costs of $6.90, which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consist of 60% variable costs and 40% fixed costs.

A vendor has offered to supply the IMC2 component at a price of $243.00 per unit.

(a)

Prepare the incremental analysis for the decision to make or buy IMC2.

Direct materials $ 56.00 Direct labor 37.00 Overhead 126.50 Total $219.50

Explanation / Answer

so the company should manufacture the units instead of buying them.

direct material 56 direct labor 37 variable overhead 78.66 total relevant cost 171.66 supply price 243 savings in manufacture 71.34

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