Question
Make-or-Buy Decision LaSalle Manufacturing had always made its components in-house. However, Jasper Component Works had recently offered to supply one component, C-430, at a price
Make-or-Buy Decision
LaSalle Manufacturing had always made its components in-house. However, Jasper Component Works had recently offered to supply one component, C-430, at a price of $12 each. LaSalle uses 4,500 units of Component C-430 each year. The cost per unit of this component is as follows:
Direct materials | $7.97 |
Direct labor | 2.61 |
Variable overhead | 1.29 |
Fixed overhead | 3.00 |
Total | $14.87 |
The fixed overhead is an allocated expense; none of it would be eliminated if production of Component C-430 stopped.
Required:
1. List the relevant costs for each alternative. If required, round your answers to two decimal places.
Total Relevant Cost | |
Make | $per unit |
Buy | $per unit |
Differential Cost to Make | $per unit |
If LaSalle decides to purchase the component from Jasper, by how much will operating income increase or decrease? ------------------ $--------------
2. Conceptual Connection: Which alternative is better? ----------------
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