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Relevant cost

Please see attached file.

Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climate-Control for $20 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally:

Per Unit 15,000 Units
per year
Direct materials $ 6 $ 90,000
Direct labor 8 120,000
Variable manufacturing overhead 1 15,000
Fixed manufacturing overhead, traceable 5 * 75,000
Fixed manufacturing overhead, common, but allocated 10 150,000
Total cost $ 30 $ 450,000
*40% supervisory salaries; 60% depreciation of special equipment (no resale value).

Requirement 1:

(a) What will be the total relevant cost of 15,000 units, if they are manufactured internally? (Omit the "$" sign in your response.)


Solution Summary

The solution explains how to determine the relevant costs in a make or buy decision.