Question: Xia Co currently buys a component part for 5 per
Xia Co. currently buys a component part for $5 per unit. Xia believes that making the part would require $2.25 per unit of direct materials and $1.00 per unit of direct labor. Xia allocates overhead using a predetermined overhead rate of 200% of direct labor cost. Xia estimates an incremental overhead rate of $0.75 per unit to make the part. Should Xia make or buy the part?
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