Beta Inc.can produce a unit of Zed for the following costs:
$\begin{array}{l}
\text { Direct material } & \$10 \
\text { Direct labor } & 20 \
\text { Overhead } &\underline { 50} \
\text { Total costs per unit } & \underline { \$80}
\end{array}$
An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit.If Beta buys from the supplier, it will still incur 40% of its overhead.Beta should:
A)Buy Zed since the relevant cost to make it is $60.
B)Make Zed since the relevant cost to make it is $60.
C)Buy Zed since the relevant cost to make it is $80.
D)Make Zed since the relevant cost to make it is $30.
E)Buy Zed since the relevant cost to make it is $30.

Question

Beta Inc.can produce a unit of Zed for the following costs: 
$\begin{array}{l}
\text { Direct material } & \$10 \
\text { Direct labor } & 20 \
\text {  Overhead } &\underline { 50} \
\text { Total costs per unit } & \underline { \$80}
\end{array}$
 An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit.If Beta buys from the supplier, it will still incur 40% of its overhead.Beta should:
A)Buy Zed since the relevant cost to make it is $60.
B)Make Zed since the relevant cost to make it is $60.
C)Buy Zed since the relevant cost to make it is $80.
D)Make Zed since the relevant cost to make it is $30.
E)Buy Zed since the relevant cost to make it is $30.

Quizplus · Accepted Answer

The relevant cost to make Zed is $60, which includes direct material, direct labor, and 40% of overhead. Since the supplier's price of $58 is lower than the relevant cost to make, Beta should buy Zed from the supplier.

Beta IncCan Produce a Unit of Zed for the Following Costs