Olive Corp Currently Makes 20,000 Subcomponents a Year in One

question 33

Multiple Choice

Olive Corp currently makes 20,000 subcomponents a year in one of its factories.The unit costs to produce are: An outside supplier has offered to provide Olive Corp with the 20,000 subcomponents at a $36 per unit price.Fixed overhead is not avoidable.If Olive Corp rejects the outside offer,what will be the effect on short-term profits?

• A)$80,000 increase
• B)no change
• C)$160,000 decrease
• D)$80,000 decrease

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Definitions:

Remeasured

Adjusted or recalculated, often in the context of converting the value of foreign currency transactions or financial statements into a functional currency.

Historical Exchange Rate

The exchange rate at which a foreign currency transaction was completed, used to convert values to a presentation currency for reporting purposes.

Common Stock

Equity securities that represent ownership in a corporation, providing voting rights and a share in the company's profits through dividends.

Foreign Subsidiary

A company that is owned or controlled by another company (parent company) and is located in a country different from where the parent company is headquartered.