A company currently makes a component used in production. The per unit costs incurred to make the component include: Direct materials: $5; Direct labor: $2; Overhead: $4; Total cost: $11. Twenty-five percent of the overhead costs are considered incremental. The company can purchase the component from another source for $10. The company should do which of the following

Production is the process of mixing a variety of material and symbolic elements to create a consumable product. It is the act of producing an output, such as an item or service, that has value and adds to people's value.

Making Pieces is indeed the correct answer since it is $2 less expensive.

There are no multiple choice alternatives, and We had been unable to locate any.

However, I believe I know what the solution is.

It will most likely inquire as to what the corporation should do. Should it pay $10 for said goods or create it itself?

To answer this, we must calculate the cost of making each component unit, which is equal to hours worked + material prices + overhead.

Overhead is claimed to be incremental to the tune of 25%. This indicates that the Marginal Level of Manufacture is equal to 25% of Overhead. i.e., a per cost.

=

= 1

Administrative expenditures would be charged at $1 per unit.

As a result, the total cost per unit is = 2 + 5 + 1 = $8.

Companies must make the component instead of buying it for $10 since it will price them $8 to do just that.

To know more about the cost and the expenditure of the company, refer to the link below:

link

Make Components as it is cheaper by $2 to do so

Explanation:

I see there are no multiple choice options and I could not seem to find any.

However I have a feeling what the answer could be.

It will probably be asking what the company should do. Should it buy the product for $10 or make it itself.

To solve this we would have to calculate the cost of making each unit of the component.

= Direct Labour + Direct Material + Overhead

25% of Overhead is said to be Incremental. This means that 25% of Overhead is the Marginal Cost of production. i.e, the cost per unit.

= 25% * 4

= 1

We would charge $1 per unit to overhead costs.

The total cost per unit is therefore,

= 2 + 5 + 1

= $8

Since it will cost $8 to product the component themselves, they should produce it instead of buy it for $10

answer; ///decision making under risk;