Make-or-Buy Decision, Alternatives, Relevant Costs

Each year, Basu Company produces 18,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.38. The unit cost is:

Direct materials	$0.89
Direct labor	0.31
Variable overhead	0.05
Fixed overhead	2.10
Total unit cost	$3.35

Required:

1. What are the alternatives for Basu Company? - Select your answer -Make the part in houseBuy the part externallyMake the part in house or buy the part externallyNoneItem 1

2. Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production. - Select your answer -Direct materials, direct labor and variable and fixed overheadDirect materials, direct labor and variable overheadDirect materials, direct labor and fixed overheadNoneItem 2

List the relevant cost(s) of external purchase. - Select your answer -Purchase priceSales priceMaterial priceNoneItem 3

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

- Select your answer -Making the part in houseBuying the part from the external supplierItem 4 by $

4. What if $20,000 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? - Select your answer -Making the part in houseBuying the part from the external supplierItem 6 by $