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

Relevant costs:
Direct material $ 8
Direct labor 24
Overhead 24 (40 x .6)
$ 56

Alpha CoCan Produce a Unit of Beta for the Following Costs