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 52,000 units of RX5 follows. Direct materials Direct labor Overhead 5 4.00 8.00 9.00 Total costs per unit 5 21.00 Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 52,000 units of RX5 for 18.00 per unit. Required 1. Calculate the incremental costs of making and buying component RX5 Total incremental costs of: Making the units Buying the units Total costs Should the company continue to manufacture the part, or should it buy the part from the outside supplier?

Explanation / Answer

Total incremental costs of: Making the units Buying the units Total direct materials $208,000 Total direct labor $416,000 Variable overhead costs $140,400 Cost to buy the units 936,000 Total costs $764,400 $936,000 Should the company continue to manufacture the part, or should it buy the part from the outside supplier? Make the units

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