Question: Xia Co. currently buys a component part for $7 per unit. Xia believes that making the part would require $4.15 per unit of direct materials

Xia Co. currently buys a component part for $7 per unit. Xia believes that making the part would require $4.15 per unit of direct materials and $1.15 per unit of direct labor. Xia allocates overhead using a predetermined overhead rate of 225% of direct labor cost. Xia estimates an incremental overhead rate of $0.70 per unit to make the part.

1-a. What are the relevant costs for Xia to make or buy the part?

1-b. Should Xia make or buy the part?

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