Haver Company currently produces component RX5 for one of its products. The current cost per unit to manufacture the required 50,000 units of RX5 follows. Direct materials $ 5.00 Direct labor 8.00 Overhead . 9.00 Total cost per unit $22.00 Check (1) Incremental cost to make RX5, $740,000 Direct materials and direct labor are 100% variable. Overhead is 80% fixed. An outside supplier has offered to supply the 50,000 units of RX5 for $18.00 per unit. Required 1. Determine the total incremental cost of making 50,000 units of RX5. 2. Determine the total incremental cost of buying 50,000 units of RX5. 3. Should the company make or buy RX5?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Haver Company currently produces component RX5 for one of its products. The current cost per unit to
manufacture the required 50,000 units of RX5 follows.
Direct materials $ 5.00
Direct labor 8.00
Total cost per unit $22.00
Check (1) Incremental cost
to make RX5, $740,000
Direct materials and direct labor are 100% variable. Overhead is 80% fixed. An outside supplier has
offered to supply the 50,000 units of RX5 for $18.00 per unit.
Required
1. Determine the total incremental cost of making 50,000 units of RX5.
2. Determine the total incremental cost of buying 50,000 units of RX5.
3. Should the company make or buy RX5?
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