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
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