Beto Company pays $2.50 per unit to buy a part for one of the products it manufactures.
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Beto Company pays $2.50 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 $1.20 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.
(b) Should Gilberto make or buy the part?
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