1. The estimated costs of producing 6,000 units of a component are:

Per Unit Total

Direct Material $10 $60,000

Direct Labor 8 48,000

Applied Variable Factory Overhead 9 54,000

Applied Fixed Factory Overhead 12 72,000

$1.5 per direct labor dollar

$39 $234,000

The same component can be purchased from market at a price of $29 per unit. If the component is purchased from market, some percentage of the fixed factory overhead will be saved.

a. Should the component be purchased from the market?

b. From the above, what is the relevant cost

2. What is relevant cost

a. What is management decision

b. Mention management decision tools