Each year, Giada Company produces 20,000 units of a component part used in tablet computers. An outside supplier has offered to supply the part for $1.39. The unit cost is:

Direct materials	$0.83
Direct labor	0.34
Variable overhead	0.13
Fixed overhead	2.55
Total unit cost	$3.85

1. What are the alternatives for Giada Company?

a. Make the part in house

b.Buy the part externally

c.Make the part in house or buy the part externally

d.None

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

a.Direct materials, direct labor and variable and fixed overhead

b.Direct materials, direct labor and variable overhead

c.Direct materials, direct labor and fixed overhead

d.None

List the relevant cost(s) of external purchase.

a.Purchase price

b.Sales price

c.Material price

d.None

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

a. Making the part in house

b. Buying the part from the external supplier

by $___________

4. What if $21,600 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?

a. Making the part in house

b. Buying the part from the external supplier

by $___________