CIMA BA2 · Chapter 11 · Question 9 of 12
A company needs 5,000 units of a component. Making it in-house costs $14 per unit in variable costs and would also require a supervisor costing $18,000, who would not otherwise be employed. An outside supplier offers the component at $17 per unit. Which option is cheaper, and by how much?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Buy, saving $3,000
Explanation
Relevant cost of making = (5,000 x $14) + $18,000 avoidable supervision = $70,000 + $18,000 = $88,000. Cost of buying = 5,000 x $17 = $85,000. Buying is cheaper by $3,000.
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