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:

Calculate relevant costs for making the part

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Calculate relevant costs for buying the part

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Determine cost difference and decision

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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