Beta Inc. can produce a unit of Zed for the following costs: Direct Material $10

Question

Beta Inc. can produce a unit of Zed for the following costs:

Direct Material $10
Direct Labor $20
Overhead $50

Total $80

An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit. If Beta buys from the supplier, they will still incur 40% of its overhead. Beta should:

A. Buy Zed since the relevant cost to make it is $80.
B. Buy Zed since the relevant cost to make it is $30.
C. Make Zed since the relevant cost to make it is $30.
D. Buy Zed since the relevant cost to make it is $60.
E. Make Zed since the relevant cost to make it is $60

Explanation / Answer

D. Buy Zed since the relevant cost to make it is $60.

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