Galley Industries can produce 500 units of a necessary component part with the following costs: $$\begin{array} { l c }
\text { Direct Materials } & \$ 75,000 \
\text { Direct Labour } & 20,000 \
\text { Variable Overhead } & 60,000 \
\text { Fixed Overhead } & 10,000
\end{array}$$ If Galley Industries purchases the component externally, $3,000 of the fixed costs can be avoided.Below what external price for the 500 units would Galley choose to buy instead of make?
A)$95,000
B)$165,000
C)$155,000
D)$158,000

Question

Galley Industries can produce 500 units of a necessary component part with the following costs: $$\begin{array} { l c } 
\text { Direct Materials } & \$ 75,000 \
\text { Direct Labour } & 20,000 \
\text { Variable Overhead } & 60,000 \
\text { Fixed Overhead } & 10,000
\end{array}$$ If Galley Industries purchases the component externally, $3,000 of the fixed costs can be avoided.Below what external price for the 500 units would Galley choose to buy instead of make?
A)$95,000
B)$165,000
C)$155,000
D)$158,000

Quizplus · Accepted Answer

The relevant costs to make are the variable costs of $155,000 ($75,000 + $20,000 + $60,000).  Galley would choose to buy if the external price is less than $155,000.

Galley Industries Can Produce 500 Units of a Necessary Component