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 60,000 units of RX5 follows.

Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 60,000 units of RX5 for $20.00 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 60,000 units of RX5 follows.

Explanation / Answer

1. Incremental Cost = [Direct Material + Direct Labour + Variable Overheads] x No. of units

= [5 + 9 + 3] x 60000

= $1020000

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