Beta Inc.can produce a unit of Zed for the following costs: $\begin{array}{lr}
\text { Direct material } & \$ 10 \
\text { Direct labor } & 20 \
\text { Overhead } & 50 \
\hline \text { Total costs per unit } & \$ 80 \
\hline \hline
\end{array}$ An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit.If Beta buys from the supplier,it will still incur 40% of its overhead.Beta should:
A)Buy Zed since the relevant cost to make it is $60.
B)Make Zed since the relevant cost to make it is $60.
C)Buy Zed since the relevant cost to make it is $80.
D)Make Zed since the relevant cost to make it is $30.
E)Buy Zed since the relevant cost to make it is $30.

Question

Quizplus · Accepted Answer

The relevant cost to make Zed is $60, which is calculated by adding the direct material ($10), direct labor ($20), and the unavoidable overhead (40% of $50 = $20), totaling $50. Since the offer from the supplier is $58, which is less than the total relevant cost of making Zed, Beta should buy Zed. However, there was a mistake in the calculation in the explanation provided; the correct total relevant cost of making Zed should actually be $10 (direct material) + $20 (direct labor) + $20 (40% of overhead) = $50, not $60. Despite this error in calculation within the explanation, the choice to buy Zed aligns with the principle of choosing the lower cost option, but the correct relevant cost calculation should be acknowledged.

Beta IncCan Produce a Unit of Zed for the Following Costs