Beta IncCan Produce a Unit of Zed for the Following Costs

question 115

Multiple Choice

Beta Inc.can produce a unit of Zed for the following costs: $\begin{array}{lr}\text { Direct material } & \$ 10 \\\text { Direct labor } & 20 \\\text { Overhead } & 50 \\\hline \text { Total costs per unit } & \$ 80 \\\hline \hline\end{array}$ An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit.If Beta buys from the supplier,it will still incur 40% of its overhead.Beta should:

• A)Buy Zed since the relevant cost to make it is $60.
• B)Make Zed since the relevant cost to make it is $60.
• C)Buy Zed since the relevant cost to make it is $80.
• D)Make Zed since the relevant cost to make it is $30.
• E)Buy Zed since the relevant cost to make it is $30.

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Definitions:

Variable Costing

A method of accounting that encompasses only the variable costs of production, such as direct materials, direct labor, and variable overhead, in the computation of product costs.

Net Income

The net earnings of a business once all costs and taxes are subtracted from its total income.

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, with fixed overhead treated as a period expense.

Absorption Costing

An accounting method that includes all manufacturing costs (fixed and variable) in the cost of a product.