Problem: Relevant Costs
An industrial company is tired of subcontractors not being able to deliver parts on time. Delivery of a particular part is particularly critical for the company. This means that the management is considering producing this themselves. The relevant department that can produce this part does not have free capacity.
When the part is bought externally, it costs NOK 17,000. The department that can produce the part receives a cover contribution per produced hour of NOK 5,000. It will take -1- hour to produce the part.
A controller has calculated the manufacturing cost for the part:
Direct costs: 6,500
Indirect variable costs 3,500
Manufacturing cost 10,000
What will be the relevant cost when management will consider starting production of the part internally, given the assumptions above?
L: Relevant cost (number without decimals) is NOK.