Factor Co. can produce a unit of product for the following costs: Direct materia

Question

Factor Co. can produce a unit of product for the following costs: Direct material Direct labor Overhead Total costs per unit 24 40 $72 Prim An outside supplier offers to provide Factor with all the units it needs at $4 6 per unit lf Factor buys from the supplier, the company will still incur 60% of its overhead. Factor should choose to: Multiple Choice Buy since the relevant cost to make it is 556 Make since the relevant cost to moke it is $48 Buy since the reievant cost to make in is $48 Make since the relevent cost to make it is $32 Buy since the relevant cost to make it is $32

Explanation / Answer

1.  Buy since the relevant cost to make it is $56

Explanation: Relevant costs are,
Direct material = $8
Direct labor = $24
Overhead = $24 ($40 x 60%)
Total relevant costs are= $56

2. The "Deluxe" product should not be processed further .

Explanation: As the after processing cost is higher than sales value. After Processing cost :450+225= 675 and sales value $ 630 .

3. Sunk cost.

Explanation: A sunk cost is a cost that has already been incurred and cannot be recovered. So here the cost of machinery already incurred and cannot be recovered.

4. An opportunity cost: Is the potential benefit lost by choosing a specific alternative course of action among two or more.

5. An additional cost incurred only if a particular action is taken is a(n): Incremental cost

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