Epsilon Co. can produce a unit of product for the following costs: Direct materi

Question

Epsilon Co. can produce a unit of product for the following costs:

Direct material $7.70

Direct Labor 23.70

Overhead 38.50

Total costs per unit $69.90

An outside supplier offers to provide Epsilon with all the units it needs at $62.35 per unit. If Epsilon buys from the supplier, the company will still incur 30% of it's overhead. Epsilon should choose to:

A. Buy since the revalent cost to make it is $69.90

B. Make since the relevant cost to make it is $58.35

C. Buy since the relavant cost to make it is $42.95

D. Make since the relavant costs to make it is $42.95

Explanation / Answer

Calculate relevant cost :

so answer is b) Make since the relevant cost to make it is $58.35

Make Buy Direct material 7.70 Direct labour 23.70 Overhead (38.50*70%) 26.95 Purchase 62.35 Total 58.35 62.35

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