assume the following cost data relate to the decision to produce total units expected to be...

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assume the following cost data relate to the decision to produce total units expected to be...

assume the following cost data relate to the decision to produce
total units expected to be produced or bought from the market. 10,000

rental of equipment $12,000
equip depreciation 2,000
direct materials 9,000
direct labor 15,000
variable overhead 6,00£
fixed overhead (non-avoidable) 24,000
total $68,00£
purchase cost 40,000

should the company acquire the product from the market?

business finance

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Answer 1

Answer #1

The relevant costs of making are the avoidable cost

i.e. Rental cost + Direct material + Direct labor + variable overhead = $42,000

Note: Fixed overhead is unavoidable and depreciation is a sunk cost

Purchase cost = $40,000

Since purchase cost is lower, the product should be acquired from market

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Answer 2

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