Epsilon Company can produce a unit of product for the following costs:

 Epsilon Company can produce a unit of product for the following costs:
 

Direct material    $ 7.80
Direct labor    23.80
Overhead    39.00
Total product costs per unit    $ 70.60
 
An outside supplier offers to provide Epsilon with all the units it needs at $59.00 per unit. If Epsilon buys from the supplier, the company will still incur 40% of its overhead. Epsilon should choose to:

Multiple Choice

Buy since the relevant cost to make it is $47.20.


Make since the relevant cost to make it is $55.00. Correct

Buy since the relevant cost to make it is $55.00.


Make since the relevant cost to make it is $47.20.



Buy since the relevant cost to make it is $70.60.

Explanation
Relevant cost to make one unit:    
Direct material    $ 7.80
Direct labor    23.80
Overhead saved (60.00% × $39.00)    23.40
Total product costs per unit    $ 55.00