SeePeeAyy
I did not see anyone answer your question regarding BEC 2-17 example that you posted two days ago. I dont know if you figured it out but I though I wold try and help. I am new to this forum. When making a decision on whether a company should make or buy a component you should only consider all the variable costs & avoidable fixed costs to determine the company’s cost to make the product. These are the only relevant costs that need to be considered when making the decision. You do not include any costs that are fixed & unavoidable in the calculation for the company’s cost to make the product. According to the example the company has $10,000 in direct materials, $40,000 in direct labor, $20,000 in variable factory overhead, and $40,000 in fixed factory overhead. Fixed factory overhead includes $30,000 of unavoidable costs. You cannot eliminate these costs, whether you build the product internally or purchase it. Therefor they are not relevant to the decision and should not be included in the calculation in determining the cost to make the product. The $10,000 floor supervisor’s salary is an avoidable fixed cost (relevant to the decision) and should be included in calculation to determine the cost of making the product. The company’s relevant cost to make the product is $80,000 (10,000 D.M. + $40,000 D.L. + $20,000 Var. O.H. + $10,000 Avoidable Fixed Costs = $80,000). The cost to purchase the product is $100,000. The floor supervisor’s salary did not lower the “make” per unit cost, the unavoidable fixed costs did. I hope this helps. If it does not I’m sorry.
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