Make-or-Buy Decision, Alternatives, Relevant CostsEach year, Basu Company produces 12,000 units of a component used in microwave ovens. An outside supplier has offered to supply the partfor $1.29. The unit cost is:Direct materials$0.84Direct labor0.26Variable overhead0.13Fixed overhead2.15Total unit cost$3.38Required: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?Making the part in house ✓ by $X4. What if $20,280 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 supplier✓ by $X

The differential analysis is performed to compare the given two alternatives available with…

Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 12,000 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 $0.84 0.26 Direct labor Variable overhead 0.13 Fixed overhead 2.15 Total unit cost $3.38 Required: 1. What are the alternatives for Basu Company? Make the part in house or buy the part externally

Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 12,000 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 $0.84 0.26 Direct labor Variable overhead 0.13 Fixed overhead 2.15 Total unit cost $3.38 Required: 1. What are the alternatives for Basu Company? Make the part in house or buy the part externally

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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Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 22,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.26. The unit cost is: Direct materials $0.77 Direct labor 0.29 Variable overhead 0.09 Fixed overhead 2.10 Total unit cost $3.25 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 4. What if $19,240 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
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Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Basu Company produces 18,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.34. The unit cost is: Direct materials $0.78 Direct labor 0.32 Variable overhead 0.14 Fixed overhead 2.90 Total unit cost $4.14 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.