Whether to Make or Buy a Part Schill Manufacturing Company makes lawn mowers. It has been buying a component from a regular supplier for $11.50 per unit. Because Schill recently has been operating at less than full capacity, the president is considering whether to make the part rather than purchase it.

The estimated total cost of making the part under the company’s costing system is $14.40, computed as follows:

Variable manufacturing overhead costs are estimated to be 40% of direct labor cost. Fixed manufacturing costs that are not differential are 60% of direct labor cost.
Required:
Decide whether Schill should make or buy the component.

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Direct materials Direct labor Manufacturing overhead (100% of direct labor cost) Estimated total cost to make $ 3.20 5.60 5.60 $14.40