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 57,000 units of RX5 follows Direct materials Direct labor Overhead $ 4.00 8.00 9.00 Total costs per unit $ 21.00 Direct materials and direct labor are 100% variable. Overhead is 80% fixed. An outside supplier has offered to supply the 57,000 units of RX5 for $19.00 per unit. Required 1. Calculate the incremental costs of making and bu ying component RX5 Total incremental costs of Making the units Buying the units 228,000$ 456,000 otal direct materials otal direct labor ariable overhead costs Cost to buy the units Total costs Should the company continue to manufacture the part, or should it buy the part from the outside supplier? 1,083,000 1,083,000 Make the units 684,000 $

Explanation / Answer

Incremental Analysis: Make Buy Total Direct material cost 228000 Total Direct labour cost 456000 Variable OH cost (9*20%) 102600 Cost of buying from supplier 1083000 Total cost 786600 1083000 Company's decision: Make the units

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