Haver Company currently produces component RX5 for its sole product. The current

Question

Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 64,000 units of RX5 follows.

Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 64,000 units of RX5 for $18.00 per unit.

Calculate the incremental costs of making and buying component RX5.

Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 64,000 units of RX5 follows.

Explanation / Answer

Harver Company Assuming Fixed Variable cost same for make & buy options, hence ignored Incremental Cost of Making/Buying   Making Buying Incremental cost pf Buying Details of variable costs Per unit Total Amt Per unit Total Amt Total Units                   64,000                 64,000 Direct Materials           4.00              256,000     (256,000) Direct Labor           8.00              512,000     (512,000) Overhead ( Variable 30%)           2.70              172,800     (172,800) Outside Purchase cost                          -                18           1,152,000    1,152,000 Total Cost           1,004,800           1,152,000        211,200 So Incremental cost of buying is $211,200

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