Elly Industries Is a Multi-Product Company That Currently Manufactures 30,000

question 154

Multiple Choice

Elly Industries is a multi-product company that currently manufactures 30,000 units of part MR24 each month for use in production of its products. The facilities now being used to produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 35,000 units per month. If Elly were to buy part MR24 from an outside supplier, the facilities would be idle, but its fixed costs would continue at 40% of their present amount. The variable production costs of Part MR24 are $11 per unit.If Elly industries is able to obtain part MR24 from an outside supplier at a purchase price of $10 per unit, the monthly financial advantage (disadvantage) of buying the part rather than making it would be:

• A) $30,000
• B) $180,000
• C) $90,000
• D) $120,000

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Definitions:

Conversion Value

The financial worth of converting a convertible security into its underlying shares, calculated based on the current price of the shares.

Conversion Ratio

The specific quantity of a secondary security that can be converted from a primary security, used in the context of convertible bonds and preferred stocks.

Employee Stock Options

These are options granted to employees as part of their remuneration package, allowing them to purchase company stock at a set price after a certain period.

Vesting Period

The period of time before an employee gains unconditional ownership over employer-provided stock or contributions to a retirement plan.