Gordon Corporation Produces 1,000 Units of a Part Per Year

question 64

Multiple Choice

Gordon Corporation produces 1,000 units of a part per year which are used in the assembly of one of its products. The unit cost of producing these parts is: The part can be purchased from an outside supplier at $20 per unit. If the part is purchased from the outside supplier, two thirds of the total fixed costs incurred in producing the part can be avoided. The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be:

• A) $3,000
• B) ($1,000)
• C) $7,000
• D) ($5,000)

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Definitions:

Cross-price Elasticity

A measure of how the demand for one good responds to a change in the price of another good, indicating substitutes or complements.

Complements

Goods or services that are used together, such that an increase in demand for one leads to an increase in demand for the other.

Price Decrease

A decline in the cost of a good or service in the market.

Lobster Consumption

The amount of lobster that is consumed by individuals or populations within a certain timeframe.