Basu Company manufactures 18,000 units of a component used in microwave ovens each year. An outside supplier has offered to supply the part for $1.38. unit cost:

Direct materials	$0.89
direct labor	0.31
variable load	0,05
fixed load	2.10
Total unit cost	$3.35

Necessary:

1. What are the alternatives for Basu Company?

2. Assume that none of the fixed costs are avoidable. List the relevant costs(s) of internal production.

3. Which alternative is more cost effective and how much?

4. What if the $20,000 fixed overhead was to lease only the equipment used to manufacture the component and could be avoided when the component was purchased ? Which alternative is more cost effective and how much?

Answer rating: 100% (QA)

1 The alternatives for Basu Company are Internal production Basu Company manufactures the component inhouse External sourcing Basu Company purchases t... View the full answer