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Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows:
Direct materials and direct labor $11
Variable overhead 5
Fixed overhead 8
Total $24
Saran Company has contacted Truckel with an offer to sell it 5,000 of the wickets for $18 each. If Truckel makes the wickets, variable costs are $16 per unit. Fixed costs are $8 per unit; however, $5 per unit is unavoidable. Should Truckel make or buy the wickets? Select one:

Respuesta :

ahmedgodtrust

Answer:

Supplier's quotation (5,000 x  $18)                     90,000

Less: Relevant costs:

Variable costs (5,000 x $16)             80,000

Avoidable fixed cost (5,000 x $3)    15,000       95,000

Loss                                                                       (5,000)

Explanation:

Trucket should buy the widgets because the relevant cost of in-house production is higher than the cost of buying from outside.