Relevant Cost to purchase the component = $170,000
Relevant Cost to make:
Direct Materials - $112,000
Direct Labor - $17,000
Variable Overhead - $39,000
Fixed Overhead - $6,000
Total Cost to make = $174,000
Sheridan's Manufacturing Company can choose to buy and save $4,000. 3rd option
Notes: When we are making a decision about make vs buy, we should only take those costs which are changes with the change in the decision. Fixed Expense to the extent of $6,000 is changing with the decision, hence the fixed expense of $6,000 is relevant for making the decision.
Sheridan's Manufacturing Company can make 100 units of a necessary component part with the following costs:...
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