CMA Study Group

Hi all, 

Why the question considered fixed cost as relevant even the question stated that only 20% of fixed cost is avoidable.  

H Corp. produces premium office chairs. Due to a recent change in market share, H must decide whether to make or buy an order of 1,000 chairs. The materials cost of producing a chair is $20 per pound, the cost of direct labor is $40 per direct labor hour, and manufacturing overhead (100% variable) is allocated at a rate of $10 per chair. Fixed costs for the year are $5 per chair, of which 20% are avoidable. Each chair requires 2 pounds of materials and 1 hour of direct labor to complete. Assuming that H has no excess capacity, what are the relevant costs per chair?

Thank you in advance 

Hi, 
Given that  there is no Excess capacity, the opportunity cost of displaced production of office chairs is a relevant cost , since this will alter the decision in favor of buying it.
Hence, it is included as relevant cost.
Therefore, the relevant cost is $95 [ 2X$20 + 1X$40 +$5]