Question

Epsilon Co. can produce a unit of product for the following costs: Direct material Direct labor Overhead Total costs per unit $7.80 23.80 39.00 $70.60 30 An outside supplier offers to provide Epsilon with all the units it needs at $5900 per unit. If Epsilon buys from the supplier, the company will still incur 40% of its overhead. Epsilon should ch oose to: Multiple Choice Buy since the relevant cost to make it is $7060 Make since the relevant cost to make it is S55.00 Buy since the relevant cost to make it is $47.20 Make since the relevant cost to make it is $4720 Buy since the relevant cost to make i is $55 00

Answer 1

Answer:

Cost to Make = $70.60 per unit

Cost if Purchased from outside supplier =($ 59 + $39 x 40%) = $74.60 per unit

Relevant cost to make one unit:
Direct material	$7.80
Direct labor	23.80
Overhead saved (60% * 39)	23.40
Total relevant cost to make	$55.00

Answer: Option B: Make since the relevant cost to make it is $55.