factor company estimates that producing a unit of product would require $7.90 per unit of direct materials and $23.90 per unit of direct labor. factor company normally applies overhead using a predetermined overhead rate of 150% of direct labor cost. factor company estimates incremental overhead of $13.83 per unit of product. an outside supplier offers to provide factor company with all the units it needs at a price of $43.63 per unit. factor company should choose to:

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anthougo anthougo · Answer 1 · 2022-12-06T11:04:49+01:00

Factor Company should choose to C. Buy it since the relevant cost to make it is $45.63.

The relevant cost refers to the avoidable cost incurred only when making specific business decisions.

While relevant costs can be avoided, irrelevant costs are unavoidable and must be incurred no matter the decision taken.

Relevant costs are also known as differential costs because they make a difference between choices.

Make-or-buy decisions are based on relevant or differential costs.

Make Buy Differential

Direct materials $7.90

Direct labor 23.90

Incremental overhead 13.83

Relevant costs per unit $45.63 $43.63 $2.00 ($45.63 - $43.63)

Thus, Factor should buy instead of producing because buying reduces the relevant costs by $2.00 per unit.

Learn more about make-or-buy decisions at https://brainly.com/question/15304126

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A. Buy it since the relevant cost to make it is $67.65.

B. Make it since the relevant cost to make it is $45.63.

C. Buy it since the relevant cost to make it is $45.63.

D. Make it since the relevant cost to make it is $34.00.