Figure 13-2

question 75

Multiple Choice

Figure 13-2. ColorPro uses part 87A in the production of color printers.Unit manufacturing costs for part 87A are:
ColorPro uses 100,000 units of 87A per year.Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12.Fixed overhead is unavoidable.
Refer to Figure 13-2.Now suppose that ColorPro discovers that other costs will increase by $7,000 per year if the component is purchased rather than made internally.Should ColorPro make or buy the part?

• A)Make the part because it will save $100,000 over buying it
• B)Buy the part because it will save $100,000 over making it
• C)Make the part because it will save $107,000 over buying it
• D)Buy the part because it will save $107,000 over making it
• E)Make the part because it will save $10,000 over buying it

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Definitions:

Payment Stream

A series of payments made or received over time, usually as part of a financial agreement such as a mortgage or annuity.

Economically Equivalent

Having the same financial value when considering various factors like time, risk, and opportunity cost.

Invested Rate

The rate of return on an investment, reflecting the annual income earned on the investment expressed as a percentage of its original cost.

Invested Rate

Refers to the interest rate applied to an investment or the return rate achieved on invested capital.