attie Company has been purchasing 40,000 units of component, Part A25 for $38.40 per unit. Hattie is currently operating at 80% of capacity and no significant increase in production is anticipated shortly. The cost of manufacturing a unit of Part A25 is estimated as follows for 40,000 units:   Direct materials $23.00 Direct labor 9.00 Variable factory overhead 2.24 Fixed factory overhead ($100,000 will be saved if purchased)     6.30      Total $40.54   Required: Should Hattie Company buy part A25 externally or make them internally? Prepare differential analysis to support your decision.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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attie Company has been purchasing 40,000 units of component, Part A25 for $38.40 per unit. Hattie is currently operating at 80% of capacity and no significant increase in production is anticipated shortly. The cost of manufacturing a unit of Part A25 is estimated as follows for 40,000 units:

 

Direct materials

$23.00

Direct labor

9.00

Variable factory overhead

2.24

Fixed factory overhead ($100,000 will be saved if purchased)

    6.30

     Total

$40.54

 

Required:

  1. Should Hattie Company buy part A25 externally or make them internally? Prepare differential analysis to support your decision.
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