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Step 1/1 Calculation of Relevant Cost will be as follow- Make Buy Direct Material $617,500 Direct Labor $237,500 Variable Overheads $190,000 Fixed Overheads - Avoidable $142,500 Purchase Cost $1,615,000 Total Relevant Cost $1,187,500 $1,615,000 Workings: Purchase Cost = Unit Cost of Purchase * Number of Units = $34 x 47,500 = $1,615,000 Vi Calculation of Variable Costs: Direct Material $617,500 [47500 * $13] Direct Labor $237,500 [47500 * $5] Variable Overheads $190,000 (47500 * $4] Fixed Overheads - Traceable $142,500 [Workings] Workings for Fixed Overhead-Traceable: Traceable Fixed Cost - Salaries = Total Units * Per Unit Cost * % of Salaries = 47,500 x 10 x 30% = 142,500 Explanation Variable Costs are those Costs which changes with respect to change in Level of Sale, Production, Area used, Hours used etc. In Given Case, Direct Material, Direct Labor and Variable Overheads are Variable Costs, Fixed Costs are those Costs which does not change with the level of sale etc.It Remains same irrespective of change in Level of Sale, Production etc. The Fixed Costs can be of Two Types 1] Avoidable Fixed Cost & 2] Unavoidable Fixed Costs, Avoidable Costs are those Costs which will eliminated as soon as the decision is Taken for Outsourcing, Unavoidable cost are those costs which will continue to be incurred irrespective of Acceptance or Non acceptance of Outstourcing Decision. In Given Case, the Depreciation Expenses will remain Same irrespective of Outsourcing Decision is Proceeded or Not, But the Salaries expenses will be elimianted and hence they have been considered.