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Croquet, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: Direct materials and direct labor $13 Variable overhead 7 Fixed overhead 10 Total $30 Saran Company has contacted Croquet with an offer to sell it 5,000 of the wickets for $17 each. Fixed costs of $4 per unit is unavoidable. Should Croquet make or buy the wickets, why

Respuesta :

ayokenny2001

Answer:

See below

Explanation:

Supplier's quotation (5,000 × $17)

$85,000

Less: Relevant costs

Variable cost (5,000 × $16)

$80,000

Avoidable fixed cost (5,000 × $4)

$20,000

Balance $100,000

Loss $15,000

Croquet should buy the widgets because the relevant cost of in house production is higher than the cost of buying it outside.