### Make or Buy Decision Analysis for Beto Company**Background:**Beto Company currently pays $5.10 per unit to purchase a part used in its production process. The company is considering manufacturing the part internally due to available excess capacity. The cost considerations for making the part include:- Direct Materials: $5.10 per unit- Direct Labor: $1.00 per unit**Overhead Costs:**- The company's standard overhead cost is 200% of the direct labor cost.- Incremental overhead for manufacturing the part is 80% of the direct labor cost.**Decisions to Make:**(a) **Prepare a Make or Buy Analysis:**The analysis involves comparing the costs associated with making the part versus buying the part.**Cost Analysis Chart:**| (a) Make or Buy Analysis | Make | Buy ||---------------------------|------|-----|| Direct materials | | || Direct labor | | || Overhead | | || Cost to buy | | || Cost per unit | | || **Cost difference** | | |(b) **Recommendation:**Based on the cost analysis, Beto Company should determine whether to make or buy the part. Fill in the yellow cell with your conclusion.**Instructions:**- Use the chart to input calculated costs for both making and buying the part.- Consider both direct costs and overhead costs in your analysis.- Round your answers to two decimal places for precision.The decision should weigh the total cost differences between the two options and choose the most cost-effective strategy.

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Answered: (a) Prepare a make or buy analysis of…

(a) Prepare a make or buy analysis of costs for this part. (Enter your answers rounded to 2 decimal places.) (b) Should Beto make or buy the part?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

### Make or Buy Decision Analysis for Beto Company

**Background:**

Beto Company currently pays $5.10 per unit to purchase a part used in its production process. The company is considering manufacturing the part internally due to available excess capacity. The cost considerations for making the part include:
- Direct Materials: $5.10 per unit
- Direct Labor: $1.00 per unit

**Overhead Costs:**
- The company's standard overhead cost is 200% of the direct labor cost.
- Incremental overhead for manufacturing the part is 80% of the direct labor cost.

**Decisions to Make:**

(a) **Prepare a Make or Buy Analysis:**

The analysis involves comparing the costs associated with making the part versus buying the part.

**Cost Analysis Chart:**

| (a) Make or Buy Analysis | Make | Buy |
|---------------------------|------|-----|
| Direct materials | | |
| Direct labor | | |
| Overhead | | |
| Cost to buy | | |
| Cost per unit | | |
| **Cost difference** | | |

(b) **Recommendation:**

Based on the cost analysis, Beto Company should determine whether to make or buy the part. Fill in the yellow cell with your conclusion.

**Instructions:**

- Use the chart to input calculated costs for both making and buying the part.
- Consider both direct costs and overhead costs in your analysis.
- Round your answers to two decimal places for precision.

The decision should weigh the total cost differences between the two options and choose the most cost-effective strategy.

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