Answer:
The incremental costs of making and buying component RX5 is $100,000
Explanation:
For computing the increment cost of making and buying component RX5, first we have to compute the cost of making and buying component RX5 separately.
Cost of making includes:
Direct Material = 50,000 × $5 = $250,000
Direct Labor = 50,000 × 9 = $450,000
Variable Overhead cost = 50,000 × 10 × 30% = $150,000
So, total cost of making = Direct material cost + direct labor cost + variable overhead cost
= $250,000 + $450,000 + $150,000
= $850,000
Now, the cost of buying component is equals to
= units × RX5 per unit
= 50,000 × $19
= $950,000
So, the incremental costs of making and buying component RX5 is equals to
= cost of making - cost of buying component
= $950,000 - $850,000
= $100,000
Hence, the incremental costs of making and buying component RX5 is $100,000
