Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 61,000 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 80% fixed. An outside supplier has offered to supply the 61,000 units of RX5 for $19.00 per unit.
Required:
Calculate the incremental costs of making and buying component RX5.
Total incremental costs of: Making the units Buying the units
Total direct materials $244,000
Total direct labor 488,000
Variable overhead costs 109,800
Cost to buy the units
Total costs $841,800
Should the company continue to manufacture the part, or should it buy the part from the outside supplier?
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