1. The estimated costs of producing 6,000 units of a component are: Per Unit Total Direct...

1. The estimated costs of producing 6,000 units of a component are:

Per Unit Total

Direct Material $10 $60,000

Direct Labor 8 48,000

Applied Variable Factory Overhead 9 54,000

Applied Fixed Factory Overhead 12 72,000

$1.5 per direct labor dollar

$39 $234,000

The same component can be purchased from market at a price of $29 per unit. If the component is purchased from market, some percentage of the fixed factory overhead will be saved.

a. Should the component be purchased from the market?

b. From the above, what is the relevant cost

2. What is relevant cost

a. What is management decision

b. Mention management decision tools

Solutions

Expert Solution

	Per unit	Total
	Make	Buy	Make	Buy
Purchase Price		29		$1,74,000.00
Direct Material	10		$ 60,000.00
Direct Labor	8		$ 48,000.00
Variable Overhead	9		$ 54,000.00
Relevant Fixed Overhead	3		$ 18,000.00
Total Relevant Costs	30	29	$1,80,000.00	$1,74,000.00
Difference in Favor of Buying	1	$ 6,000.00

a. Should the component be purchased from the market?

Yes company should buy it will have a saving of $6000

b. From the above, what is the relevant cost

is $30 per unit in case of make and $29 per unit in case of buy

2. What is relevant cost

Relevant cost are avoidable costs that are incurred only when making specific business decisions.

3 Mention management decision tools

Marginal Analysis

Pareto Analysis

SWOT Diagram

Decision Matrix

ekkarill92 answered 1 year ago

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