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Homework answers / question archive / GMH Company manufactures 100,000 units of Part X annually for use in one of its main products
GMH Company manufactures 100,000 units of Part X annually for use in one of its main products. The total manufacturing cost for 100,000 units of Part X is as follows:
Direct materials $120,000
Direct labor 80,000
Variable overhead 40,000
Fixed overhead 160,000
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Total cost $400,000
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Selin Company has offered to sell GMH 100,000 units of Part X per year. If GMH accepts this offer, the facilities used to produce Part X can be used in the production of other components. This change would save GMH $10,000 in rent for the leased production facility used at present to support the production of other components. What is the amount of relevant costs for this make-or-buy decision?
Computation of Amount of Relevant Costs for this make-or-buy decision:
Direct materials = $120,000
Direct labor = $80,000
Variable overhead = $40,000
Avoidable Rent = $10,000
Total amount of relevant costs = $250,000
