Question

Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 58,000 units of RX5 follows. Direct materials Direct labor Overhead Total costs per unit $ 4.00 8.00 9.00 21.00 Direct materials and direct labor are 100% variable. Overhead is 80% fixed. An outside supplier has offered to supply the 58,000 units of RX5 for $19.00 per unit. Required: 1. 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?

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Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

B Answer 3 4 Total Incremental Costs of Making the Units Making the Unite Buying the Units 5 Direct Material (4*58000) 232000 6 Direct Labor (8*58000) 464000 7 Variable Overheads (19*20%)*58000) 104400 8 Purchase cost (19*58000) 1102000 9 Total Costs 800400 1102000 Should the company continue to manufacture the part or manufacture the 10 should it buy the part from the outside supplier ? part 12 For any help please comment in the comment box 13