Hadley, Inc. makes a line of bathroom accessories. Because of a decline in sales, the company has 10,000 machine hours of idle capacity available each year. This idle capacity could be used by the company to make, rather than buy, one of the components used in its production process. Hadley needs 5,000 units of this component each year. At present, the component is being purchased from an outside supplier at $7.50 per unit. Variable production cost for the component would be $4.10 per unit, and additional supervisory costs would be $18,000 per year. Other fixed costs of regular production amount to $300,000 per year; these costs will remain unchanged if the component is made. What would be the incremental cost per unit if the part is made internally? Should Hadley make or buy the component?

Answer rating: 100% (QA)

Solution Incremental cost per unit if the part is made internally ... View the full answer