Green Manufacturing Makes 30,000 Units Per Year of a Part

question 7

Multiple Choice

Green Manufacturing makes 30,000 units per year of a part used in the manufacture of its new camcorder.An outside supplier has offered to sell Green all of these parts for $48 a unit.If the parts were purchased from the supplier,all of the direct labor costs would be avoided as well as $5 of manufacturing overhead costs per unit.Product cost information for the part under review follows: How much of the unit product cost is relevant in the decision of whether to make or buy the part?

• A) $15.
• B) $25.
• C) $40.
• D) $45.

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Definitions:

Corporate Tax Rate

The percentage of a corporation's profits that is paid to the government as tax.

Coupon Rate

The interest rate that a bond issuer will pay to a bondholder.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, typically paying fixed dividends.

Cost of Retained Earnings

The opportunity cost for a company of using its retained earnings as a source of finance for new investments, often estimated using the cost of equity.