Help Save&Exit; MC Qu. 49 Epsilon Co. can produce a unit of product Epslon Co. c

Question

Help Save&Exit; MC Qu. 49 Epsilon Co. can produce a unit of product Epslon Co. can produce a unit of product for the foillowing costs Direct material Direct labor 24 s) overhead Total costs per unit $72 per unit. If E An outside suppler offlers to provide Epsilon with all the ts overhead Epsilon should choose to units it needs at S60 per unt lfEpsion buys from the supple, the company will stil incur 40% of Mutiple Choice Buy since the elevant cost toak $72 Prev " 40 lli MacBook Air 8 9 commarn

Explanation / Answer

Answer:

Option 2 i.e. Make since the Relevant Cost to make is $56.

Relevant Cost of Making Product are:

Relevant Cost = Direct Materials + Direct Labor + Overhead Cost
Relevant Cost = $8 + $24 + ($40 * 60%)
Relevant Cost = $8 + $24 + $24
Relevant Cost = $56

The Epsilon Co. Should make the Product as the Relevant Cost of Making is less than the Cost of Buying.

Note:
Only 60% of Overhead cost is relevant, as remaining 40% of Overhead cost will incurred even if the Product is not manufactured.

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