Question

The Jabba Corporation manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip bowls or buy them from an outside supplier?

	The direct labor used to make the dip bowls	The variable manufacturing overhead cost of the Snack Buster
A)	Yes	Yes
B)	Yes	No
C)	No	Yes
D)	No	No

Multiple Choice

• Choice A

• Choice B

• Choice C

• Choice D

Answer 1

Answer is Choice B

In decision to make vs. buy the relevant cost is the variable cost and avoidable cost of the component to be purchased from outside supplier. Hence in the given case Dip bowl is the item to be decided whether it should be made in-house or purchased from outside supplier. The direct labor cost of dip bowl is relevant for analysis but variable manufacturing overhead of Snack buster is not relevant in decision making

Hence answer is Option B)