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how do i find the answer for this
The following information has been given to you regarding three components
manufactured by Dum Plc.
Dim Dom Dem
Variable cost per unit 2 5 3
Fixed cost absorbed 1 2 1.5The three components Dim, Dom, and Dem could be bought from outside suppliers for a purchase
price of $2.5, $ 4 and $ 4 respectively. Assess whether the components should be manufactured
in house or purchased from outside.For this one we compare the making cost ( the manufacturing in house cost – not including the fixed overhead)
to the supplier buy in priceSo we compare
Dim $2 vs $2.5 – so making in house is cheaper
Dom $5 vs $4 – so buying from supplier is cheaper
Dem $3 vs $4- so making in house is cheaper.Main principle here is we ignore general fixed overhead in relevant costing situations because if we decide to buy in (the fixed cost will not be saved).
Hope thats ok
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