Kando Company currently pays $19 per unit to buy a part for a product it manufactures. Instead, Kando could make the part for per unit costs of $8 for direct materials, $6 for direct labor, and $2 for incremental overhead. Kando normally applies overhead costs using a predetermined rate of 200% of direct labor cost.
(a) Prepare a make or buy analysis of costs for this part.
(b) Should Kando make or buy the part?
Make Buy
Direct materials $8 Direct labor 6 Overhead 2 Cost to buy Cost per unit $16 Company should: Make