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Interdesign uses 1,000 units of the component IMC2 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows:

Direct materials $ 65.50
Direct labor 48.36
Overhead 128.82
Total
$242.68

Overhead costs include variable material handling costs of $6.94, which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consist of 50% variable costs and 50% fixed costs. A vendor has offered to supply the IMC2 component at a price of $199.17 per unit.

Should Interdesign purchase the component from the outside vendor if Interdesign's capacity remains idle? The unit cost would be $________ less if they made it.

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  • Category:- Accounting Basics
  • Reference No.:- M954640

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