Make-or-Buy Decision, Alternatives, Relevant Costs

Each year, Basu Company produces 21,000 units of a component used in microwave ovens. An outside supplier has offered to supply the part for $1.24. The unit cost is:

Direct materials	$0.81
Direct labor	0.27
Variable overhead	0.1
Fixed overhead	2.70
Total unit cost	$3.88

Required:

1. What are the alternatives for Basu Company?

Make the part in houseBuy the part externallyMake the part in house or buy the part externallyNone

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

Direct materials, direct labor and variable and fixed overheadDirect materials, direct labor and variable overheadDirect materials, direct labor and fixed overheadNone

List the relevant cost(s) of external purchase.

Purchase priceSales priceMaterial priceNone

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

Making the part in houseBuying the part from the external supplier

by $fill in the blank 5

4. What if $21,920 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?

Making the part in houseBuying the part from the external supplier

by $fill in the blank 7