Relevant cost, the make or buy decision
The Rocky Road Company has the following cost
information regarding a product that it makes with a current volume
of 40,000 units.
Unit Cost
Total Cost
Direct Material
$100
$4,000,000
Direct Labor
$40
$1,600,000
VMOH
$60
$2,400,000
FMOH
$75
$3,000,000
It had has been approached by the Smooth Road Company
with an offer to make this product.
The offer is to make 40,000 units at a cost of $240 per
unit.
After a...