Question

Your Answer incorrect Given the following, determine if a buy price for 3,000 units @ $4.00 per unit should be accepted or if the company should continue to make the 3,000 units. F Feedback Direct materials ($1.00 per unit) $3,000 Labor ($1.60 per unit) $4,800 Variable overhead ($1.10 per unit) $3,300 Fixed overhead $1,500 Common costs $2,000 If the company buys the component, all of the variable costs and fixed overhead costs are differential. None of the common costs will be eliminated if the component is purchased. Based on price, the company should make/buy) BUY the component at a net total advantage Blank 1 of $ 3000 Blank 2 Correct Answer Blank 1: buy Blank 2: 600

Answer 1

Solution: buy; $600

Working:

Direct material ($1.00 per unit)	3,000
Labor ($1.60 per unit)	4,800
Variable OH ($1.10 per unit)	3,300
Fixed OH	1,500
Total cost to make	12,600
Minus: Cost to buy (3000 units * $4 per unit)	12,000
Advantage to buy	600