Exercise 20-8 Innova uses 1,040 units of the component IMC2 every month to manuf

Question

Exercise 20-8 Innova uses 1,040 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$61.17 Direct labor overhead overhead costs include variable material handling costs of 7.40 which are applied to products on the basis o direct material costs The remainder of the overhead costs are applied on the basis o direct labor dollars and consist of 60 variable costs and 40% fixed costs. A vendur as offered to supply the IMC2 component at a price of $200 per unit. to supply t Prepare tha incremental analysis for the decision to maloe or buy IC2. Net Income Make IMC2 (per unit) Buy IMC2 (per ut) Increase (Decrease) Direct material Direct labor Material handling Variable ovcrhead Purchase price Total unit cost Should Innova purchase the component from the outside vendor if Innova's capacity remains idle? Click il you would like to Show Work for this question: pen Shaw Work

Explanation / Answer

Differential analysis:

b) Innove should make the components

Make Buy Net income increase (decrease) Direct material 63616.80 63616.80 Direct labour 45240 45240 Material handling 7696 7696 Variable overhead 74318.40 74318.40 Purchase price 208000 (208000) Total unit cost 190871.20 208000 (17128.80)

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