LaSalle Manufacturing had always made its components in-house. However, Jasper Component Works had recently offered...
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Accounting
LaSalle Manufacturing had always made its components in-house. However, Jasper Component Works had recently offered to supply one component, C-430, at a price of $12 each. LaSalle uses 4,600 units of Component C-430 each year. The cost per unit of this component is as follows:
Direct materials
$7.73
Direct labor
2.32
Variable overhead
1.91
Fixed overhead
4.00
Total
$15.96
The fixed overhead is an allocated expense; none of it would be eliminated if production of Component C-430 stopped.
Required:
1. List the relevant costs for each alternative. If required, round your answers to two decimal places.
Total Relevant Cost
Make
$per unit
Buy
$per unit
Differential Cost to Make
$per unit
If LaSalle decides to purchase the component from Jasper, by how much will operating income increase or decrease?
Increase
Decrease
$
2. Conceptual Connection: Which alternative is better?
Buy
Make
Answer & Explanation
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