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Item 1

Item 1 5.83 points

Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 62,000 units of RX5 follows.

 

  Direct materials $ 4.00   Direct labor   8.00   Overhead   9.00   Total costs per unit   21.00  

Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 62,000 units of RX5 for $20.00 per unit.

 

Required:

1. Calculate the incremental costs of making and buying component RX5.

Total incremental costs of:Making the unitsBuying the unitsTotal direct materials$

248,000Total direct labor496,000Variable overhead costs558,000Cost to buy the unitsTotal costs$

1,302,000 Should the company continue to manufacture the part, or should it buy the part from the outside supplier?