## Answers

a.

Direct material | $12.10 |

Direct labor | 19.70 |

Variable manufacturing overhead | 1.90 |

Fixed manufacturing overhead-Avoidable ($9.80-6.30) | 3.5 |

Total relevant cost per unit | $37.2 |

b.

Make decision | Buy decision | Net effect | |

Direct material | $72,600 | $72,600 | |

Direct labor | 118,200 | 118,200 | |

Variable manufacturing overhead | 11,400 | 11,400 | |

Fixed manufacturing overhead-Avoidable | 21,000 | 21,000 | |

Purchase price | 247,200 | (247,200) | |

Additional revenue | (43,200) | 43,200 | |

Total | $223,200 | $(204,000) | $19,200 |

Financial advantage of purchasing the part = $19,200

c.

Maximum amount willing to pay to outside supplier = (Financial advantage + Purchase price) / Number of units

Maximum amount willing to pay to outside supplier = $(19,200 + 247,200) / 6,000 = $44.4 per unit

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