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:

Margin Call

A demand by a broker that an investor deposit further cash or securities to cover possible losses in a margin account.

Initial Margin

The minimum amount of funds or securities that must be deposited in a margin account before trading on margin, serving as a security for credit risk.

Securities and Exchange Commission

This is an independent federal government agency responsible for protecting investors, maintaining fair and orderly functioning of securities markets and facilitating capital formation.

Preliminary Registration Statement

A document submitted to regulatory authorities prior to a securities offering that provides details about the offering and the issuer.