Kingston Company, which needs 10,000 units of a certain part to be used in its p

Question

Kingston Company, which needs 10,000 units of a certain part to be used in its production cycle, can make or buy the part. If Kingston buys the part from Utica Company, Kingston could not use the released facilities in another manufacturing activity within the coming year. 60% of the fixed overhead applied will continue regardless of which decision is made. The following information is available: Per-unit cost to Kingston to make the part: Direct materials Direct labor Variable overhead Fixed overhead applied $6 24 12 15 S57 $53 Cost to buy the part from Utica Company In deciding whether to make or buy the part, Kingston's total relevant cost to make the part would be: O $342000 $480.000. O $530.00o O $570.000. O Some amount other than these choices 16

Explanation / Answer

Relevant cost per unit to make the part=6+24+12+(15*40%)= $48 Totaal relevant cost=10000*48=$480000 Option 2 is correct

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