Alto Company currently produces component TH1 for one of its products. The current cost per unit to manufacture its required 400,000 units of TH1 follows. Direct materials and direct labor are 100% variable. Overhead is 75% fixed. An outside supplier has offered to supply the 400,000 units of TH1 for $4 per unit. Required 1. Determine whether management should make or buy the TH1. Analysis Component 2. What factors besides cost must management consider when deciding whether to make or buy TH1? Direct materials . $1.20 Direct labor . 1.50 Overhead . 6.00 Total cost per unit . $8.70
Alto Company currently produces component TH1 for one of its products. The current cost per unit to manufacture its required 400,000 units of TH1 follows. Direct materials and direct labor are 100% variable. Overhead is 75% fixed. An outside supplier has offered to supply the 400,000 units of TH1 for $4 per unit. Required 1. Determine whether management should make or buy the TH1. Analysis Component 2. What factors besides cost must management consider when deciding whether to make or buy TH1? Direct materials . $1.20 Direct labor . 1.50 Overhead . 6.00 Total cost per unit . $8.70
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 7CE
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Alto Company currently produces component TH1 for one of its products. The current cost per unit to
manufacture its required 400,000 units of TH1 follows.
Direct materials and direct labor are 100% variable.
offered to supply the 400,000 units of TH1 for $4 per unit.
Required
1. Determine whether management should make or buy the TH1.
Analysis Component
2. What factors besides cost must management consider when deciding whether to make or buy TH1?
Direct materials . $1.20
Direct labor . 1.50
Overhead . 6.00
Total cost per unit . $8.70
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