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Managerial Accounting

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Floaty Make or Buy: Identify Relevant Costs to the Decision

MGRACT-OERGY3

Floaty Co. makes a product that has two parts, A17 and B45. They are considering two initiatives for the upcoming coming year.

The first initiative is to buy part A17 to free up more space to make B45. The second proposal is for buying new equipment to reduce operating costs.

The new equipment is automated and so requires fewer workers to operate and runs cooler so utilities will be lower. The old equipment would be sold for scrap metal as there is no market for the old technology.

Which costs are relevant for the first initiative to make-or-buy the part to free up space to make B45?

A

Total costs of making Part B45.

B

Proceeds from selling scrap metal from old machine.

C

Avoidable fixed manufacturing costs for Part A17.

D

The cost of new equipment for making Part B45.