. Radio Company makes several models of radios for the auto industry. One of the
ID: 2420757 • Letter: #
Question
. Radio Company makes several models of radios for the auto industry. One of the components is currently purchase for $ 220.00 per 100 units. Management is reviewing the possibility of making the part in-house. Annual production of this one model radio is 70,000 units. Fixed costs are $ 38,500.00 (which is unchanged whether the part is made or purchased), variable cost per unit for direct materials is $ 0.70, $ 0.55 per unit for direct labor, and $ 0.70 per unit for variable overhead. Using the incremental analysis, make a decision as to whether Radio Company should manufacture the part or purchase the part from an outside vendor. (8 points) Difference Make Buy In favor of Make Direct Materials __________________ _________ _________ _____________ Direct Labor __________________ _________ _________ _____________ Variable Overhead _______________ _________ _________ _____________ Purchased Parts _________________ _________ _________ _____________ Totals $ _________ $ _________ $ _____________ Decision: ____________________________________________________________________
Explanation / Answer
If purchased If manufactured
As can be seen, the cost to be incurred is more if the product is purchased from outside. So it will be beneficial to manufacture the product in house.
As the fixed cost will be same, whther the product is puchased or manufactured. So it wont be taken into consideration for taking decision.
Particulars Amount Particulars Amount Cost incurred $2.2 Variable cost $0.70 $220/100 Direct Labor $0.55 Variable overhead $0.70 Total Cost $2.2 Total Cost 1.95Related Questions
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