Make or buy decision-relevant cost

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Reference no: EM1350156

Davis Company manufactures used parts in production of widgets. When 10,000 items are produced, the costs per unit are:

Direct Materials $0.50
Direct Manufacturing labor 2.00
Variable manufacturing overhead 1.20
Fixed manufacturing overhead 1.60

Jackson Company has offered to sell to Davis Company, 10,000 units of the part for 5.00 per unit. The facility could be used to manufacture another item at a savings of $9,000 if Davis Company accepts the offer. In addition, 1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.

a. What is the relevant per unit cost for the original part?

b. Which alternative is best for Davis Company? By how much?

Reference no: EM1350156

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