Innova uses 1,095 units of the component IMC2 every month to manufacture one of
ID: 2464786 • Letter: I
Question
Innova uses 1,095 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 $ 63.00 Direct labor 37.00 Overhead 126.50 Total $226.50 Overhead costs include variable material handling costs of $7.10, 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 $255.00 per unit. (a) Prepare the incremental analysis for the decision to make or buy IMC2. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make IMC2 Buy IMC2 Net Income Increase (Decrease) Direct material $ $ $ Direct labor Material handling Variable overhead Purchase price Total unit cost $ $ $
Explanation / Answer
Statement showing computations Particulars Make Buy Difference Direct Materials- = 1095 *63 68,985.00 68,985.00 Direct Labour =1095 *37 40,515.00 40,515.00 Variable Material Handling Costs = 1095 *7.10 7,774.50 7,774.50 Variable Overhead Costs = 71.64*1095 78,445.80 78,445.80 Purchase Cost = 1095*255 279,225.00 (279,225.00) Total Costs 195,720.30 279,225.00 (83,504.70) Make is a better Option WN Overhead Excluding Mat Handling costs = 126.50 - 7.10 119.40 Variable Costs @60% 71.64 Fixed Costs @40% 47.76