Make-or-Buy Decision, Alternatives, Relevant CostsEach year, Basu Company produces 21,000 units of a component used in microwave ovens. An outside supplier has offered to supply the partfor $1.13. The unit cost is:Direct materials$0.72Direct labor0.27Variable overhead0.08Fixed overhead2.80Total unit cost$3.87Required:1. What are the alternatives for Basu Company?Make the part in house or buy the part externally2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production.Direct materials, direct labor and variable overheadList the relevant cost(s) of external purchase.Purchase price3. Which alternative is more cost effective and by how much?v by sMaking the part in house4. What if $21,640 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component ispurchased? Which alternative is more cost effective and by how much?Buying the part from the external supplierv by 위

Formula: Differential cost = Making - Buying

Each year, Basu Company produces 21,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.13. The unit cost is: Direct materials $0.72 Direct labor 0.27 Variable overhead 0.08 Fixed overhead 2.80 Total unit cost $3.87 Required: 1. What are the alternatives for Basu Company?

Each year, Basu Company produces 21,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.13. The unit cost is: Direct materials $0.72 Direct labor 0.27 Variable overhead 0.08 Fixed overhead 2.80 Total unit cost $3.87 Required: 1. What are the alternatives for Basu Company?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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