ACCA · Question 08 · Decision-making techniques
Section A
VoltMotors manufactures electric vehicles. They currently make a specialized battery component in-house. The variable cost of production is $45 per unit. Fixed overheads absorbed are $15 per unit. An external supplier has offered to supply the component for $50 per unit. If outsourced, 40% of the fixed overheads currently absorbed by the component would be saved.
Should VoltMotors make or buy the component, and what is the relevant cost saving/loss per unit?
Answer options:
Buy externally, as it saves $10 per unit.
Buy externally, as it saves $1 per unit.
Make in-house, as buying externally results in a relevant loss of $5 per unit.
Make in-house, as buying externally results in a relevant loss of $1 per unit.
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