Zouar Computer Corporation Currently Manufactures the Disk Drives That It

question 79

Multiple Choice

Zouar Computer Corporation currently manufactures the disk drives that it uses in its computers. The costs to produce 5,000 of these disk drives last year were as follows: Kidal Electronics has offered to provide Zouar with all of its disk drive needs for $27 per drive. If Zouar accepts this offer, Zouar will be able to use the freed up space to generate an additional $40,000 of income each year to produce more of its computer keyboards. Only $3 per drive of the fixed manufacturing overhead cost above could be avoided. Direct labor is an avoidable cost in this decision. Based on this information, would Zouar be financially better off making the drives or buying the drives and by how much?

• A) $15,000 better to buy
• B) $20,000 better to buy
• C) $35,000 better to buy
• D) $60,000 better to make

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Definitions:

Total Utility

The total satisfaction or benefit a consumer receives from consuming a particular quantity of goods and services.

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A field of study concerned with questions about government, politics, liberty, justice, property, rights, law, and the enforcement of a legal code by authority.

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Non-cash assistance provided by governments or organizations, including goods and services, to individuals or other entities.

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A government-provided assistance program designed to help individuals and families with low income purchase food.