Exercise 20-8 Innova uses 1,060 units of the component IMC2 every month to manuf

Question

Exercise 20-8 Innova uses 1,060 units of the component IMC2 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows Direct materials $61.73 Direct labor Overhead Total 40.73 126.50 $228.96 Overhead costs include variable material handling costs of $7.03, which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consist of 60% variable costs and 40% fixed costs A vendor has offered to supply the IMC2 component at a price of $260 per unit. Prepare the incremental analysis for the decision to make or buy IMC2 Net Income Increase (Decrease) Make IMC2 (per unit) Buy IMC2 (per unit) Direct material Direct labor Material handling Variable overhead Purchase price Total unit cost Should Innova purchase the component from the outside vendor if Innova's capacity remains idle?

Explanation / Answer

The answer is NO

Particulars Make Buy Net income increase/(decrease) Direct materials 61.73 61.73 Direct labor 40.73 40.73 Material handling 7.03 7.03 Variable OH 71.68 71.682 Pruchase 260 -260 Total 181.17 260 -78.828

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