Question

Epsilon Co. can produce a unit of product for the following costs: Direct material $ 7.80 Direct labor 23.80 Overhead 39.00 Total product costs per unit $ 70.60 An outside supplier offers to provide Epsilon with all the units it needs at $59.00 per unit. If Epsilon buys from the supplier, the company will still incur 40% of its overhead. Epsilon should choose to:

Answer 1

Answer and Explanation:

The computation is shown below:

The relevant cost is

= Direct material + direct labor + avoidable overhead cost

= $7.80 + $23.80 + ($39 × (1 - 0.40))

= $7.80 + $23.80 + $23.40

= $55 per unit

And, the cost of buying the product is $59 per unit

So here the epsilon should choose to make the product as it less than the buying cost

The same is to be considered