2 Haver Company currently produces component RX5 for its sole product. The curre

Question

2 Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 55,000 units of RX5 follows. Direct materials Direct labor Overhead $ 4.00 8.00 9.00 21.00 8 points Total costs per unit Direct materials and direct labor are 100% variable. Overhead is 80% fixed. An outside supplier has offered to supply the 55,000 units of RX5 for $20.00 per unit. Required I. Calculate the incremental costs of making and buying component RX5. 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

Calculation of incremental costs of making and buying component RX5 Total Incremental costs of Making the units Buying the units Direct Material $220,000 Direct Labour $440,000 Overhead ($9 * 20% = $1.80 per unit) $99,000 Purchase cost $1,100,000 Total Costs $759,000 $1,100,000 Should the Company continue to manufacture the part or should it buy the part from the outside supplier? Manufacture

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