Question

Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 50,000 units of RX5 follows.

Direct materials	$ 5.00
Direct labor	8.00
Overhead	9.00
Total costs per unit	22.00

  

Direct materials and direct labor are 100% variable. Overhead is 80% fixed. An outside supplier has offered to supply the 50,000 units of RX5 for $18.00 per unit.

  

Required:

  

1.

Calculate the incremental costs of making and buying component RX5.

Calculate the incremental costs of making and buying component RX5.

Total incremental costs of:	Making the units	Buying the units
Cost to buy the units
Total direct materials
Variable overhead costs
Total direct labor
Total costs
Should the company continue to manufacture the part, or should it buy the part from the outside supplier?

Answer 1