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12 December, 03:43

To make a batch of 800 units, it is estimated that 120 direct labor hours are required at a cost of $12 per hour. Direct material costs are estimated at $1,800 per batch. The overhead costs are calculated based on an overhead rate of $7.50 per direct labor hour. The item can be readily purchased from a local vendor for $5 per unit.

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  1. 12 December, 05:58
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    It is more convenient to buy the product from an outsource supplier.

    Explanation:

    Giving the following information:

    To make a batch of 800 units, it is estimated that 120 direct labor hours are required for $12 per hour. Direct material costs are estimated at $1,800 per batch. The overhead costs are calculated based on an overhead rate of $7.50 per direct labor hour. The item can be readily purchased from a local vendor for $5 per unit.

    We need to determine whether it is more convenient to make in house or outsource.

    Make in house:

    Total variable cost = 120*12 + 1,800 + 120*7.5 = $4,140

    Unitary variable cost = 4,140/800 = $5.18

    Buy = 5

    It is more convenient to buy the product from an outsource supplier.
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