Answer:
Koshka
If Koshka accepts the make or buy offer, it will save $17 per batch.
Explanation:
a) Data and Calculations:
Cost of making corn chips per batch:
Direct materials $18.00
Direct labor 13.00
Variable overhead 11.00
Fixed overhead 14.00
Total costs $56.00
Relevant costs of making the corn chips batch in-house:
Direct materials $18.00
Direct labor 13.00
Variable overhead 11.00
Total variable costs $42.00
Relevant cost of buying from the outside supplier per batch = $25
Savings = $17 ($42 - $25)
b) Fixed overhead is not a relevant cost because it will still be incurred whether Koshka makes or buys the corn chips batch. The relevant costs are the costs that will change as a result of the choice made.
