Innovative Automation Corporation is currently manufacturing a part that goes into its main product. Each year 5,700 of these parts are used. Cost data for the past year that relates to the 5,700 parts are given below. Fixed costs are allocated on the basis of direct labor hours. An outside company has offered to supply the part for $62.70 per unit, plus a shipping charge of $5.70 per unit. The plant now used by Innovative Automation Corporation to manufacture the part would not be used to capacity within the foreseeable future if the part is purchased outside.

Variable costs:
Direct materials	$	210,900
Direct labor		153,900
Variable overhead costs		15,390
Fixed overhead costs		28,500

Required: Prepare an analysis comparing the unit cost of manufacturing the part with the unit cost of purchasing it. Analyze: What is the highest cost that Innovative Automation Corporation should consider paying for the part in an outside purchase?

a.

Prepare an analysis comparing the unit cost of manufacturing the part with the unit cost of purchasing it. (Round final answers to two decimal places. Enter all values as positive value.)

INNOVATIVE AUTOMATION CORPORATION
Analysis of Effects of Making or Buying a Part
Cost to purchase:
Total unit cost to purchase
Cost to make the part:
Total unit cost to make the part
Differential cost savings if manufactured

b.

What is the highest cost that Innovative Automation Corporation should consider paying for the part in an outside purchase? (Round final answers to two decimal places. Enter the value as positive value.)

	Highest cost

__________