Charlie Co needs 20 000 units of a certain part to
Charlie Co. needs 20,000 units of a certain part to use in its production cycle. The following information is available:
Cost to Charlie to make the part:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 4
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Variable factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Fixed factory overhead applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$38
Cost to buy the part from Delta Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$36
If Charlie buys the part from Delta instead of making it, Charlie could not use the released facilities in another manufacturing activity. Eighty percent of the fixed factory overhead applied will continue regardless of what decision Charlie makes.
1. In deciding whether to make or buy the part, what are the total relevant costs per unit to make the part?
2. What decision should Charlie make?

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