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: Variable manufacturing overhead 4 Fixed manufacturing overhead 9 Total $1 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. (a) Calculate relevant cost to make. Relevent cost to make. $(b) Should Outland continue to manufacture the part?

Explanation / Answer

Relevant cost to make = direct material + Direct labour + variable manufacturing overhead

= 3+3+4

=10

Cost of buying the part = 13

Outland should manufacture the part as cost of manufacture is less than cost of buying it from outsider

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