Problem 23-3A Make or buy LO A1 Haver Company currently produces component RX5 f

Question

Problem 23-3A Make or buy LO A1

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 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.

Direct materials $ 5.00 Direct labor 9.00 Overhead 10.00 Total costs per unit 24.00

Explanation / Answer

1. Calculate the incremental costs of making and buying component RX5.

Total incremental costs of: Making the units Buying the units Direct material 260000 Direct labour 468000 Variable overhead (52000*10*30%) 156000 Purchase cost(52000*18) 936000 Total costs 884000 936000 the company continue to manufacture the part, its gives profit by 52000

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