Accounting problem. Need help please Question 9 Innova uses 1,079 units of the c

Question

Accounting problem. Need help please

Question 9 Innova uses 1,079 units of the component IMC2 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows Direct materials 58.00 Direct labor Overhead Total 44.00 126.50 $228.50 Overhead costs include variable material handling costs of $6.70, which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consist of 60% variable costs and 40% fixed costs. A vendor has offered to supply the IMC2 component at a price of $245.00 per unit.

Explanation / Answer

No , Innova should not purchase the component from outside if it has idle production capacity.

Particulars Make Buy Net Income (+)/(-) Direct material 58 0 58 Direct Labor 44 0 44 Material Handling 6.70 0 6.70 Variable OH 71.88 0 71.88 Purchase Price 0 245 (245) Total Cost per unit 180.58 245 (64.42)

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