Explore BrainMass

# Make or buy decision and relevant cost

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Davis Company manufactures used parts in production of widgets. When 10,000 items are produced, the costs per unit are:

Direct Materials \$0.50
Direct Manufacturing labor 2.00

Jackson Company has offered to sell to Davis Company, 10,000 units of the part for 5.00 per unit. The facility could be used to manufacture another item at a savings of \$9,000 if Davis Company accepts the offer. In addition, 1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.

a. What is the relevant per unit cost for the original part?

b. Which alternative is best for Davis Company? By how much?

#### Solution Preview

a. What is the relevant per unit cost for the original part?

Relevant costs are the costs that change due to the decision. The relevant costs are
Direct Materials \$0.50 ...

#### Solution Summary

The solution explains how to determine the relevant cost for a make or buy decision

\$2.49