Curly Inc.is considering whether to continue to make a component or to buy it from an outside supplier.The company uses 16,000 of the components each year.The unit product cost of the component according to the company's cost accounting system is given as follows: Assume that direct labor is a variable cost.Of the fixed manufacturing overhead,30% is avoidable if the component were bought from the outside supplier.In addition,making the component uses 1 minute on the machine that is the company's current constraint.If the component were bought,this machine time would be freed up for use on another product that requires 2 minutes on the constraining machine and that has a contribution margin of $8.10 per unit. When deciding whether to make or buy the component,what cost of making the component should be compared to the price of buying the component?
A)$20.60
B)$17.52
C)$24.65
D)$21.57

Question

Curly Inc.is considering whether to continue to make a component or to buy it from an outside supplier.The company uses 16,000 of the components each year.The unit product cost of the component according to the company's cost accounting system is given as follows:  Assume that direct labor is a variable cost.Of the fixed manufacturing overhead,30% is avoidable if the component were bought from the outside supplier.In addition,making the component uses 1 minute on the machine that is the company's current constraint.If the component were bought,this machine time would be freed up for use on another product that requires 2 minutes on the constraining machine and that has a contribution margin of $8.10 per unit. When deciding whether to make or buy the component,what cost of making the component should be compared to the price of buying the component?
A)$20.60 
B)$17.52 
C)$24.65 
D)$21.57

Quizplus · Accepted Answer

Relevant cost per unit:
 11eaaee8_667b_8cf1_933a_8570784f4842_TB5186_00

Curly Incis Considering Whether to Continue to Make a Component or or to Buy