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Xia Co. currently buys a component part for $5 per unit. Xia believes that making the part would require $2.25 per unit of direct materials and $1.00 per unit of direct labor. Xia allocates overhead using a predetermined overhead rate of 200% of direct labor cost. Xia estimates an incremental overhead rate of $0.75 per unit to make the part. 1-a. What are the relevant costs for Xia to make or buy the part

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Answer and Explanation:

The computation is shown below:

The relevant costs for Xia Co. to make or buy the part is  

Direct materials         $2.25

Direct labor                   1.00

Incremental overhead 0.75

Total relevant cost   $4.00

And, the relevant cost of buying a component is $5

So here the less cost would  be considered

Therefore the component should make as it saves $1 per unit

The same would be considered and relevant too

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