deciding whether to manufacture a part or buy it from an outside supplier, which of the...
deciding whether to manufacture a part or buy it from an outside supplier, which of the following is an irrelevant cost? A. Fixed overhead that will continue even if the part is purchased from an outside supplier B. Direct labor C. Fixed overhead that will be avoided if the part is purchased from an outside supplier D. Variable overhead
Homework Answers
In deciding whether to manufacture a part or buy it from an outside supplier, the irrelevant cost is Fixed overhead that will continue even if the part is purchased from an outside supplier.
Correct option is (A)
Direct labor , variable overhead and Fixed overhead that will be avoided if the part is purchased from an outside supplier, these all are relevant costs in deciding whether to manufacture a part or buy it from an outside supplier.
The sum of Direct labor, variable overhead and Fixed overhead that will be avoided if the part is purchased from an outside supplier is the cost of manufacture. It is compared with the price of the outside supplier to make a decision whether to buy or make.
If the price of outside supplier is less than the sum of Direct labor, variable overhead and Fixed overhead that will be avoided if the part is purchased from an outside supplier, then the part should be purchased from the outside supplier.
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