(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?
(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?
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb5ae4578-9d0d-4369-b6dd-45d14c4c9e30%2F66c4eab5-0219-4fcc-bd95-fd8502d43dbe%2Febw7edk_processed.png&w=3840&q=75)
Transcribed Image Text:### 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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