Question

To make a batch of 800 units, it is estimated that 120 direct labor hours are required at a cost of $12 per hour. Direct material costs are estimated at $1,800 per batch. The overhead costs are calculated based on an overhead rate of $7.50 per direct labor hour. The item can be readily purchased from a local vendor for $5 per unit.

Answer 1

It is more convenient to buy the product from an outsource supplier.

Step-by-step explanation:

Giving the following information:

To make a batch of 800 units, it is estimated that 120 direct labor hours are required for $12 per hour. Direct material costs are estimated at $1,800 per batch. The overhead costs are calculated based on an overhead rate of $7.50 per direct labor hour. The item can be readily purchased from a local vendor for $5 per unit.

We need to determine whether it is more convenient to make in house or outsource.

Make in house:

Total variable cost= 120*12 + 1,800 + 120*7.5= $4,140

Unitary variable cost= 4,140/800= $5.18

Buy= 5

It is more convenient to buy the product from an outsource supplier.