14. Make or Buy decision: Relevant costs and qualitative factors

14 Make or buy decision: Relevant costs and L02 qualitative factors Lara Loft Company needs 5000 units of a certain part to be used in production. If Lara Loft buys the part from Matrix Company instead of making it themselves, Lara Loft could use the present facilities for another manufacturing activity. Sixty per cent of the fixed overhead applied will continue regardless of what decision is made. The following quantitative information is available regarding the situation presented: Cost to make the part: Direct materials Direct labour Variable overhead Fixed overhead applied $ 3.00 12.00 6.00 7.50 $28.50 $26.50 Cost to buy the part: REQUIRED a In deciding whether to make or buy the part, what are Lara Loft's total relevant costs to make the part? b Which alternative (make or buy) is more desirable for Lara Loft and by what amount? C Suppose that Lara Loft Company is in an area of the country with high unemployment and that it is unlikely that displaced employees will find other employment. How might that affect your decision