Alpha Co.can produce a unit of Beta for the following costs:
$\begin{array}{l}
\text { Direct material } & \$8 \
\text { Direct labor } & 24 \
\text { Overhead } &\underline { 40} \
\text { Total costs per unit } & \underline { \$72}
\end{array}$

An outside supplier offers to provide Alpha with all the Beta units it needs at $60 per unit.If Alpha buys from the supplier, Alpha will still incur 40% of its overhead.Alpha should:
A)Buy Beta since the relevant cost to make it is $72.
B)Make Beta since the relevant cost to make it is $56.
C)Buy Beta since the relevant cost to make it is $48.
D)Make Beta since the relevant cost to make it is $48.
E)Buy Beta since the relevant cost to make it is $56.

Question

Alpha Co.can produce a unit of Beta for the following costs: 
$\begin{array}{l}
\text { Direct material } & \$8 \
\text { Direct labor } & 24 \
\text {  Overhead } &\underline { 40} \
\text { Total costs per unit } & \underline { \$72}
\end{array}$

An outside supplier offers to provide Alpha with all the Beta units it needs at $60 per unit.If Alpha buys from the supplier, Alpha will still incur 40% of its overhead.Alpha should:
A)Buy Beta since the relevant cost to make it is $72.
B)Make Beta since the relevant cost to make it is $56.
C)Buy Beta since the relevant cost to make it is $48.
D)Make Beta since the relevant cost to make it is $48.
E)Buy Beta since the relevant cost to make it is $56.

Quizplus · Accepted Answer

The relevant cost to make Beta is $56, which includes direct material ($8), direct labor ($24), and 40% of overhead ($16). Since $56 is less than the $60 per unit offered by the supplier, Alpha should make Beta.

Alpha CoCan Produce a Unit of Beta for the Following Costs