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Make or buy decision

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Need 12,000 units
Sixty per cent of fixed overhead applied will continue

Cost to make part Cost to buy part

Direct materials $5.00
Direct labor $25.00
Variable overhead $12.00
Fixed overhead applied $15.00


Total cost $57.00 $45.00

A. In deciding whether to make or buy, what the total relevant costs to make the part?

B. Which alternative (make or buy) is more desirable and by what amount?

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Solution Summary

The solution explains how to identify the relevant costs and take the make or buy decision

Solution Preview

A. The relevant costs are those which change with the decision. In terms of make or buy decision, the relevant costs are the avoidable costs. The costs that ...

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