Manufactures product which contains part

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Walters Industries manufactures a product which contains part XYZ. The company has always purchased this part from a supplier for $70 each. Walters recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the part instead of buying it. The company prepared the following per unit cost projections of making the part, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 60% of direct labor cost. Direct materials $52.00/ direct labor 16.00/Over head (fixed and variable) 9.60 = Total $77.60 The required volume of output to produce the parts will not require any incremental fixed overhead. Incremental variable overhead cost is $4.50 per part. Should Walters make or buy the parts? So I did a differential analysis and got to buy of course $77.6 and to produce $74.50 with a differential effect on income of $3.10. Is this correct or did I miss a process and if so what was it.

Reference no: EM131129891

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