# Alpha Company needs 20,000 units of a certain part to use in its production cycle. The following

## Question:

Alpha Company needs 20,000 units of a certain part to use in its production cycle. The following information is available:

Cost to Alpha 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 Bravo Company . . . . . . . . . \$36

If Alpha buys the part from Bravo instead of making it, Alpha could not use the released facilities in another manufacturing activity. Eighty percent of the fixed factory overhead applied will continue regardless of what decision Alpha 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 Alpha make?

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