Make-or-Buy Decision, Alternatives, Relevant Costs

Each year, Giada Company produces 22,000 units of a component part used in tablet computers. An outside supplier has offered to supply the part for $1.4. The unit cost is:

Direct materials	$0.87
Direct labor	0.32
Variable overhead	0.08
Fixed overhead	2.90
Total unit cost	$4.17

Required:

1. What are the alternatives for Giada Company?

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

List the relevant cost(s) of external purchase.

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

4. What if $20,720 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?