Question Content AreaMake-or-Buy Decision, Alternatives, Relevant CostsEach year, Basu Company produces 24,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.29. The unit cost is:Direct materials$0.86Direct labor0.28Variable overhead0.09Fixed overhead 2.65 Total unit cost$3.88Required:1. What are the alternatives for Basu Company? 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. List the relevant cost(s) of external purchase. 3. Which alternative is more cost effective and by how much? by $fill in the blank 54. What if $19,560 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much? by $fill in the blank 7

Solution Dear student as per the Q&A guideline we are required to answer the first three…

Answered: Required: 1. What are the alternatives…

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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Question Content Area

Make-or-Buy Decision, Alternatives, Relevant Costs

Each year, Basu Company produces 24,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.29. The unit cost is:

Direct materials $0.86

Direct labor 0.28

Variable overhead 0.09

Fixed overhead 2.65

Total unit cost $3.88

Required:

1. What are the alternatives for Basu Company?

2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production.

List the relevant cost(s) of external purchase.

3. Which alternative is more cost effective and by how much?

by $fill in the blank 5
4. What if $19,560 of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much?

by $fill in the blank 7

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