Question

Wheeler Company can produce a product that incurs the following costs per unit: direct materials, $11.00; direct labor, $25.00, and overhead, $17.00. An outside supplier has offered to sell the product to Wheeler for $48.55. If Wheeler buys from the supplier, it will still incur 45% of its overhead cost. Compute the net incremental cost or savings of buying.

Answer 1

$3.20 per unit

Step-by-step explanation:

In this question, we have to compare the cost between two cases

In the first case, the total cost per unit would be

= Direct materials per unit + direct labor per unit + overhead cost per unit

= $11 + $25 + $17

= $53

In the first case, the total cost per unit would be

= Purchase price + overhead cost

= $48.55 + $17 × 45%

= $48.55 + $7.65

= $56.20

So, the difference would be

= $56.20 - $53

= $3.20 per unit