Each year, Giada Company produces $11,000$ units of a component part used in tablet computers. An outside supplier has offered to supply the part for $$1\mathrm{.}24.$ The unit cost is:

Direct materials $$0\mathrm{.}75$

Direct labor $0\mathrm{.}3$

Variable overhead $0\mathrm{.}08$

Fixed overhead $2\mathrm{.}15$

Total unit cost $$3\mathrm{.}28$

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

$4.$ Each year, Giada Company produces $11,000$ units of a component part used in tablet computers. An outside supplier has offered

to supply the part for $$1\mathrm{.}24.$ The unit cost is:

Required:

What are the alternatives for Giada Company?

Make the part in house or buy the part externally $$

Assume that none of the fixed cost is avoidable. List the relevant cost$($s$)$ of internal production.

Direct materials, direct labor and variable overhead $$

List the relevant cost$($s$)$ of external purchase.

$$

Which alternative is more cost effective and by how much?

Making the part in house $$ by $

What if $$20,560$ of fixed overhead is rental of equipment used only in production of the component that can be avoided if the

component is purchased? Which alternative is more cost effective and by how much?

Buying the part from the external supplier $$ by $What if $$20,560$ of fixed overhead is rental of equipment used only in production of the component that can be avoided if the component is purchased? Which alternative is more cost effective and by how much?