Question

Epsilon Co. can produce a unit of product for the following costs: Direct material $ 8.80 Direct labor 24.80 Overhead 44.00 Total product costs per unit $ 77.60 An outside supplier offers to provide Epsilon with all the units it needs at $66.20 per unit. If Epsilon buys from the supplier, the company will still incur 35% of its overhead. Epsilon should choose to:

Answer 1

Answer:

Make since the relevant cost to make it is $62.20.

Explanation:

There is an option below the question ask for details

The computation of the total product cost is shown below:

= Direct material per unit + Direct labor per unit + Overhead cost per unit

where,

Overhead cost per unit would be

= Overhead cost per unit × remaining percentage

= $44 × 65%

= $28.6

All the other items values would remain the same

Now put these values to the above formula  

So, the value would equal to

= $8.80 + $24.80 + $28.6

= $62.20

Since the given total product cost is more than the computed one so the company will choose make option and for decision making we take only 65% which is relevant