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7 July, 21:31

Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 57,000 units of RX5 follows. Direct materials $ 5.00 Direct labor 9.00 Overhead 10.00 Total costs per unit $ 24.00 Direct materials and direct labor are 100% variable. Overhead is 80% fixed. An outside supplier has offered to supply the 57,000 units of RX5 for $20.00 per unit. Required: 1. Calculate the incremental costs of making and buying component RX5.

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  1. 7 July, 21:37
    0
    Answer

    Making the product 922,000

    Buying the product 1,140,000

    Explanation:

    Total Incremental Costs of:

    Making the Units Buying the Units

    Direct Material295,000 (5*57000)

    Direct Labor 513,000

    (9*57000)

    Overhead 114,000

    (10 - (10*80%) * 57000

    Purchase Price 1,140,000 (20*57000)

    Total Costs 922,000 1,140,000
  2. 7 July, 21:55
    0
    To Make Incremantal Costs = $ 912,000

    To Buy Incremental Costs = $ 1,140,000

    Explanation:

    incremental costs of making and buying component RX5

    To Make Incremantal Costs

    Direct materials $ 5.00 * 57,000 units 285,000

    Direct labor $9.00 * 57,000 units 513,000

    Overhead $10.00 * 20% * 57,000 units 114,000

    Totals 912,000

    To Buy Incremental Costs

    Purchase Price $20.00 * 57,000 units 1,140,000

    Totals 1,140,000

    Note : Fixed Overheads have been excluded as they are incurred whether or not the Haver Company makes or buys the component RX5. Thus not incremental.
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