Question - Rajiv Company has been purchasing a component, Part Q, for $18.90 a unit. Rajiv is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q, determined by absorption costing methods, is estimated as follows:
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Direct materials
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$11.25
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Direct labor
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4.50
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Variable factory overhead
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1.12
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Fixed factory overhead
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3.15
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Total
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$20.02
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Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.