1) "A component part should be purchased whenever the purchase price is less than its total manufacturing cost per unit." Do you agree? Why?

2) "Relevant costs for pricing decisions are full costs of the product." Do you agree? Explain. The End, 

Answer:

1. No a component should be purchased only if purchase cost is less than Variable costs + Avoidable fixed costs.

For example: A product has variable manufacturing Cost per unit is $7 and fixed cost per unit is $5. So total cost of manufacuring is $12. Now we should not buy the product from Outside at any price over $7, because $5 fixed costs will continue to occur even if we purchase from outside.

2. No, Relevant costs for pricing decision are Variable costs + Avoidable fixed costs, not the full cost. Also in case of running at full capacity, Relevants costs are its existing selling price.

For example if a company receives an order for $15 per unit and its variable manufacturing costs are $12 per Unit and Fixed manufacturing costs are $4 per unit and additional capacity is available, the order should be accepted. Because relevant cost in this case is variable manufacturing costs.