Beta Inc. can produce a unit of Zed for the following costs:
$$\begin{array} { l r }
\text { Direct material } & \$ 10 \
\text { Direct labor } & 20 \
\text { Overhead } & \underline{50} \
\text { Total costs per unit } & \underline { \$ 80 }
\end{array}$$
An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit. If Beta buys from the supplier, they will still incur 40% of its overhead. Beta should:

Question

Beta Inc. can produce a unit of Zed for the following costs: 
$$\begin{array} { l r } 
\text { Direct material } & \$ 10 \
\text { Direct labor } & 20 \
\text { Overhead } & \underline{50} \
\text { Total costs per unit } & \underline { \$ 80 }
\end{array}$$
An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit. If Beta buys from the supplier, they will still incur 40% of its overhead. Beta should:

Quizplus · Accepted Answer

Relevant cost to make Zed is $50 (40% of $80 overhead + $10 direct material). Since the supplier's price of $58 is higher than the relevant cost to make, Beta should make Zed.

Beta Inc Can Produce a Unit of Zed for the Following