To make a batch of 1, 000 units, it is estimated that 90 direct labor hours are required at a cost of S8 per hour.
Direct material costs are estimated at $1, 650 per batch. The overhead costs are calculated based on an overhead rate of $7.50 per direct labor hour.
The item can be readily purchased from a local vendor for $6 per unit.
a. Should the item be manufactured or purchased?
b. What is the break-even value for the overhead rate (dollars per direct labor hour)?
Assume that the material costs, labor hours, and labor costs do not change.