Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows:

Direct materials and direct labor $11

Variable overhead 5

Fixed overhead 8

Total $24

Saran Company has contacted Truckel with an offer to sell it 5,000 of the wickets for $18 each. If Truckel makes the wickets, variable costs are $16 per unit. Fixed costs are $8 per unit; however, $5 per unit is unavoidable. Should Truckel make or buy the wickets? Select one:

Question

Business

Renee Arnold

15 February, 14:00

Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows:

Direct materials and direct labor $11

Variable overhead 5

Fixed overhead 8

Total $24

Saran Company has contacted Truckel with an offer to sell it 5,000 of the wickets for $18 each. If Truckel makes the wickets, variable costs are $16 per unit. Fixed costs are $8 per unit; however, $5 per unit is unavoidable. Should Truckel make or buy the wickets? Select one:

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Answers (1)

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Isiah Mckee · Answer 1

Supplier's quotation (5,000 x $18) 90,000

Less: Relevant costs:

Variable costs (5,000 x $16) 80,000

Avoidable fixed cost (5,000 x $3) 15,000 95,000

Loss (5,000)

Explanation:

Trucket should buy the widgets because the relevant cost of in-house production is higher than the cost of buying from outside.