The Outland Company manufactures 1,115 units of a part that could be purchased f

Question

The Outland Company manufactures 1,115 units of a part that could be purchased from an outside supplier for $13 each. Outland's cost to manufacture each part are as follows: All fixed overhead is unavoidable and is allocated based on direct labor. The facilities that are used to manufacture the part have no alternative uses. Calculate relevant cost to make. Should Outland continue to manufacture the part? Calculate net cost to buy if Outland leases the manufacturing facilities to another company for $5,495 per year.

Explanation / Answer

Answer (a)

Fixed manufacturing overhead is unavoidable and hence no relevant. All variable cost are relevant cost.

Answer (b)

Answer (c)

Particulars Amount Direct Material $3 Direct Labour $3 Variable manufacturing overhead $4 Total Relevant Cost Per unit $10

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