Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 52,000 units of RX5 follows

Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 52,000 units of RX5 follows.

   

Direct materials	$	5.00
Direct labor		9.00
Overhead		10.00
Total costs per unit	$	24.00

    

Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 52,000 units of RX5 for $20.00 per unit.

  

Required:

1.	Calculate the per unit incremental costs of making and buying component RX5.

	Total incremental costs of: Making the units Buying the units Total direct materials $260,000 Total direct labor 468,000 Variable overhead costs 156,000 Cost to buy the units 1,040,000 Total costs $884,000 $1,040,000 Should the company continue to manufacture the part, or should it buy the part from the outside supplier? Make the units

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3.

Harold Manufacturing produces denim clothing. This year, it produced 5,110 denim jackets at a manufacturing cost of $41.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets.

1.	Jackets can be sold to a second-hand clothing shop for $7.00 each.
2.	Jackets can be disassembled at a cost of $31,900 and sold to a recycler for $11.00 each.
3.	Jackets can be reworked and turned into good jackets. However, with the damage, management estimates it will be able to assemble the good parts of the 5,110 jackets into only 2,920 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,500, but the jackets can then be sold for their regular price of $44.00 each.

  

Required:
1.	Calculate the incremental income.

	Alternative 1 Sell as is Alternative 2 Disassemble and sell to a recycler Alternative 3 Rework and turn into good jackets Incremental revenue $35,770 $56,210 $128,480 Incremental costs 0 31,900 101,500 Incremental income $35,770 $24,310 $26,980 The company should choose: Alternative 1