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Epsilon Co. can produce a unit of product for the following costs: Direct material $ 8 Direct labor 24 Overhead 40 Total costs per unit $ 72 An outside supplier offers to provide Epsilon with all the units it needs at $60 per unit. If Epsilon buys from the supplier, the company will still incur 40% of its overhead. Epsilon should choose to:

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Answer:

If the company produces the units, it will save $4.

Explanation:

First, we need to calculate the relevant cost of making the units in-house. We will consider only the incremental overhead cost:

Make in-house:

Direct material= 8

Direct labor= 24

Avoidable Overhead= 40*0.6= 24

Total cost= $56

Buying:

Total cost= $60

If the company produces the units, it will save $4.

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