Question

gelb company currently makes a key part for its main product. making this part incurs per unit variable costs of \\$1.25 for direct materials and \\$0.80 for direct labor. incremental overhead to make this part is \\$1.42 per unit. the company can buy the part for \\$3.63 per unit.

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

Explanation:

<pre_analysis>
{
"quality": "clear",
"question_count": 2,
"skills_matched": [
"step_cot",
"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

\[

$$\begin{aligned} &\text{Direct materials} = \$1.25\\ &\text{Direct labor} = \$0.80\\ &\text{Incremental overhead} = \$1.42\\ &\text{Total cost to make per unit} = 1.25 + 0.80 + 1.42 = \$3.47 \end{aligned}$$

\]

Calculate relevant costs for buying the part

\[

$$\begin{aligned} &\text{Purchase price per unit} = \$3.63\\ &\text{Total cost to buy per unit} = \$3.63 \end{aligned}$$

\]

Determine cost difference and decision

\[

$$\begin{aligned} &\text{Cost difference (Make - Buy)} = 3.47 - 3.63 = -\$0.16\\ &\text{Decision: Make (since } \$3.47 < \$3.63 \text{)} \end{aligned}$$

\]
</reasoning>

<answer>

Question 1

(a) Make or Buy Analysis	Make	Buy
Direct labor	\$0.80
Overhead	\$1.42
Cost to buy		\$3.63
Cost per unit	\$3.47	\$3.63
Cost difference	\$0.16

Question 2

(b) Company should: Make
</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",
"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

\[

$$\begin{aligned} &\text{Direct materials} = \$1.25\\ &\text{Direct labor} = \$0.80\\ &\text{Incremental overhead} = \$1.42\\ &\text{Total cost to make per unit} = 1.25 + 0.80 + 1.42 = \$3.47 \end{aligned}$$

\]

Calculate relevant costs for buying the part

\[

$$\begin{aligned} &\text{Purchase price per unit} = \$3.63\\ &\text{Total cost to buy per unit} = \$3.63 \end{aligned}$$

\]

Determine cost difference and decision

\[

$$\begin{aligned} &\text{Cost difference (Make - Buy)} = 3.47 - 3.63 = -\$0.16\\ &\text{Decision: Make (since } \$3.47 < \$3.63 \text{)} \end{aligned}$$

\]
</reasoning>

<answer>

Question 1

(a) Make or Buy Analysis	Make	Buy
Direct labor	\$0.80
Overhead	\$1.42
Cost to buy		\$3.63
Cost per unit	\$3.47	\$3.63
Cost difference	\$0.16

Question 2

(b) Company should: Make
</answer>

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