Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Giada Company produces 25,000 units of a component part used in tablet computers. An outside supplier has offered to supply the part for $4.00. The unit cost is: Direct materials $1.60 1.25 Direct labor Variable overhead 0.75 Fixed overhead 2.50 Total unit cost $6.10 Required: 1. What are the alternatives for Giada Company? Make the part in house or buy the part externally 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. Direct materials, direct labor and variable overhead List the relevant cost(s) of external purchase. Purchase price 3. Which alternative is more cost effective and by how much? Making the part in house by $ 4. What if $25,000 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? Buying the part from the external supplier by $

Make-or-Buy Decision, Alternatives, Relevant Costs Each year, Giada Company produces 25,000 units of a component part used in tablet computers. An outside supplier has offered to supply the part for $4.00. The unit cost is: Direct materials $1.60 1.25 Direct labor Variable overhead 0.75 Fixed overhead 2.50 Total unit cost $6.10 Required: 1. What are the alternatives for Giada Company? Make the part in house or buy the part externally 2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. Direct materials, direct labor and variable overhead List the relevant cost(s) of external purchase. Purchase price 3. Which alternative is more cost effective and by how much? Making the part in house by $ 4. What if $25,000 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? Buying the part from the external supplier by $

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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