Question

Epsilon currently pays $94 per unit to buy a part for a product it sells. Epsilon has excess capacity, and estimates that making the part would incur variable costs of $8 for direct materials and $58 for direct labor. Epsilon's normal predetermined overhead rate is 150% of direct labor cost, but management computes an incremental overhead rate of $23.20 per unit to make this part. Epsilon should choose to:

Answer 1

Make as the relevant cost to make is $89.20 per unit.

Step-by-step explanation:

Calculation to determine what Epsilon should choose to:

Using this formula

Relevant cost to make= Direct material + Direct labor+Incremental overhead.

Let plug in the formula

Total Relevant cost to make=$8.00 +$58.00+$ 23.20

Total relevant cost to make$89.20

Therefore Epsilon should choose to:Make as the relevant cost to make is $89.20 per unit.