Reference no: EM132756041

Makebuy Company has 15,000 hours of idle capacity. They need 20,000 units of a component part used in its product lines. It is estimated that each unit will take one-half machine hour for production. The following information is available.

Cost to make the parts:

Materials 14

Direct labor 18

Factory overhead (75% of direct labor cost per unit)

Variable factory overhead (40% of factory overhead per unit)

Cost to buy the parts per unit from the supplier 45

If Makebuy Company buys the parts rather than producing them, it will save 60% of fixed overhead cost per unit.

REQUIRED:

Problem 1. Determine the relevant unit costs.

Problem 2. Determine the relevant total costs and differential costs.

Problem 3. Should Makebuy Company manufacture the parts, or should it buy them from the outside supplier?