5. Carter, Inc. can make 100 units of a necessary component part with
the following costs:
Direct Materials $120,000
Direct Labor 20,000
Variable Overhead 60,000
Fixed Overhead 40,000
If Carter purchases the component externally, $30,000 of the fixed
costs can be avoided. At what external price for the 100 units is the
company indifferent between making or buying?
6. Mink Manufacturing is unsure of whether to sell its product
assembled or unassembled. The unit cost of the unassembled product
is $60 and Mink would sell it for $130. The cost to assemble the
product is estimated at $42 per unit and the company believes the
market would support a price of $170 on the assembled unit. What
decision should Mink make?
7. A company decided to replace an old machine with a new machine.
Which of the following is considered a relevant cost?
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