Question

beto company pays \\$4.70 per unit to buy a part for one of the products it manufactures. with excess capacity, the company is considering making the part. making the part would cost \\$4.50 per unit for direct materials and \\$1.00 per unit for direct labor. the company normally applies overhead at the predetermined rate of 200\\% of direct labor cost. incremental overhead to make the part would be 80\\% of direct labor cost.

(a) prepare a make or buy analysis of costs for this part.
note: enter your answers rounded to 2 decimal places.
(b) should beto make or buy the part?

Explanation:

<pre_analysis>
{
"quality": "clear",
"question_count": 2,
"skills_matched": [
"step_cot",
"table_formatter",
"explain_then_answer",
"quick"
],
"needs_drawing": false,
"concepts_used": [
"Make or Buy Analysis",
"Relevant Costing",
"Incremental Overhead"
],
"new_concepts": [],
"current_concepts": [
"Make or Buy Analysis",
"Relevant Costing",
"Incremental Overhead"
]
}
</pre_analysis>

<reasoning>

Calculate relevant costs for making the part

\[

$$\begin{aligned} &\text{Direct materials} = \$4.50\\ &\text{Direct labor} = \$1.00\\ &\text{Incremental overhead} = 80\% \times \$1.00 = \$0.80\\ &\text{Total cost to make per unit} = \$4.50 + \$1.00 + \$0.80 = \$6.30 \end{aligned}$$

\]

Calculate relevant costs for buying the part

\[

$$\begin{aligned} &\text{Cost to buy per unit} = \$4.70\\ &\text{Total cost to buy per unit} = \$4.70 \end{aligned}$$

\]

Determine cost difference and decision

\[

$$\begin{aligned} &\text{Cost difference (Make - Buy)} = \$6.30 - \$4.70 = \$1.60\\ &\text{Decision: Buy (since buying is cheaper by \$1.60 per unit)} \end{aligned}$$

\]
</reasoning>

<answer>

Question 1

(a) Make or Buy Analysis	Make	Buy
Direct labor	\$1.00
Overhead	\$0.80
Cost to buy		\$4.70
Cost per unit	\$6.30	\$4.70
Cost difference	\$1.60

Question 2

(b) Company should:	Buy

</answer>

<post_analysis>
{
"subject": "Business",
"question_type": "Multi-part",
"knowledge_point": [
"Business",
"Accounting",
"Make or Buy Analysis"
]
}
</post_analysis>

Answer:

<pre_analysis>
{
"quality": "clear",
"question_count": 2,
"skills_matched": [
"step_cot",
"table_formatter",
"explain_then_answer",
"quick"
],
"needs_drawing": false,
"concepts_used": [
"Make or Buy Analysis",
"Relevant Costing",
"Incremental Overhead"
],
"new_concepts": [],
"current_concepts": [
"Make or Buy Analysis",
"Relevant Costing",
"Incremental Overhead"
]
}
</pre_analysis>

<reasoning>

Calculate relevant costs for making the part

\[

$$\begin{aligned} &\text{Direct materials} = \$4.50\\ &\text{Direct labor} = \$1.00\\ &\text{Incremental overhead} = 80\% \times \$1.00 = \$0.80\\ &\text{Total cost to make per unit} = \$4.50 + \$1.00 + \$0.80 = \$6.30 \end{aligned}$$

\]

Calculate relevant costs for buying the part

\[

$$\begin{aligned} &\text{Cost to buy per unit} = \$4.70\\ &\text{Total cost to buy per unit} = \$4.70 \end{aligned}$$

\]

Determine cost difference and decision

\[

$$\begin{aligned} &\text{Cost difference (Make - Buy)} = \$6.30 - \$4.70 = \$1.60\\ &\text{Decision: Buy (since buying is cheaper by \$1.60 per unit)} \end{aligned}$$

\]
</reasoning>

<answer>

Question 1

(a) Make or Buy Analysis	Make	Buy
Direct labor	\$1.00
Overhead	\$0.80
Cost to buy		\$4.70
Cost per unit	\$6.30	\$4.70
Cost difference	\$1.60

Question 2

(b) Company should:	Buy

</answer>

<post_analysis>
{
"subject": "Business",
"question_type": "Multi-part",
"knowledge_point": [
"Business",
"Accounting",
"Make or Buy Analysis"
]
}
</post_analysis>