CMA Study Group

Please note that in the given question there are 2 types of costs , making cost and other costs:-

1. Making cost :- which are incurred directly/indirectly to make the product
2. Other cost :- the costs which are not related to making of the product and you still need to incur if you don't make the product

Now the making variable costs are 6 dollars + if you think to buy the product from other firms it will make your variable seling expenses reduced by 30% that means your selling expenses will be reduced by 0.75 dollars . Now think before when you were making and taking all the headache of the production your unit cost was 11 but now if you buy the product you will only incur 4.25 ( fixed exp + reduced selling expenses) so there's a gap of 6.75 rupees ( your variable making cost + the reduction in selling expenses) now , the question demands , what's the maximum amount to be paid so I think the total saving in cost per unit if I choose buying the product is what I need to pay at maximum to purchase the product . Here I directly save 6.75 dollars ( mentioned earlier how the figure 6.75 came) so this is the maximum per unit cost I will be willing to pay in this current scenario 

Hi! In this question, we need to add the costs that would be different in each alternative. So, Direct Materials, Direct Labor, Variable indirect and part of variable marketing costs would be added together to get the right answer.

Direct Materials = 2

Direct Labor = 2.4

Ind. Variable costs = 1.6

Part of Variable Marketing costs = (2.5*0.3) = 0.75

Maximum amount = 6.75 

The part of variable marketing cost should be 0.75 and not 1.75 since the 1.75 is the amount that will be the same in both situations. So, we should 0.75 only. I hope this helps. Good luck!