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.

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 $ 5.00 9.00 10.00 Total costs per unit $24.00 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 $20.00 per unit. Required: 1. Calculate the incremental costs of making and buying component RX5. e Cureuate the incremental costs of making and buýing component RS 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

Solution 1.Calculation of incremental cost Total incremental cost of making Making the units Buying the units Incremnetal Cost = 52000*24 1248000 Incremnetal Cost = 52000*20 1040000 Total 1248000 1040000 2.Company sholud buy from the supplier.

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