Factor Co. can produce a unit of product for the following costs: Direct material $ 8.40 Direct labor 24.40 Overhead 42.00 Total costs per unit $ 74.80 An outside supplier offers to provide Factor with all the units it needs at $43.40 per unit. If Factor buys from the supplier, the company will still incur 70% of its overhead. Factor should choose to:

Buy since the relevant cost to make it is $46.45.

Explanation:

given data:

Direct material = $ 8.40

Direct labor = 24.40

Overhead = 42.00

Total costs per unit = $ 74.80

had to complete the question.

Multiple Choice

Buy since the relevant cost to make it is $63.85.

Make since the relevant cost to make it is $46.45.

Buy since the relevant cost to make it is $46.45.

Make since the relevant cost to make it is $33.40.

Buy since the relevant cost to make it is $33.40.

Solution:

Relevant cost to consider = Direct Material + Direct labor + (Overhead * 30%)

= $8.70 + $24.70 + ($43.50 * 30%)

= $46.45

The units should purchased from the outside supplier.

Explanation:

production costs:

Direct material $8.40

Direct labor $24.40

Overhead $42.00

Total costs per unit $74.80

avoidable costs = $8.40 + $24.40 + (30% x $42) = $45.40

unavoidable costs = $74.80 - $45.40 = $29.40

costs of purchasing from outside vendor = $43.40 + $29.40 = $72.80

since the total costs of purchasing the unit from an outside vendor are lower than the total production costs, then they should buy them from the outside supplier.

urban company reports the following information regarding its production cost: units produced 37,000 units direct labor $ 30 per unit direct materials $ 35 per unit variable overhead $ 237,000 in total fixed overhead $ 127,000 in total