Finders Company Manufactures Sewing Machines and Requires 60,000 Units of a Component

question 131

Multiple Choice

Finders Company manufactures sewing machines and requires 60,000 units of a component that is used in the manufacturing process. If Flinders buys the part from Serrano Brothers, the plant will be idle. Of the fixed overhead, 45% will continue regardless of the decision. The cost to buy the part from Serrano Brothers is $46. The unit cost to make the part is: $$\begin{array} { l r } \text { Direct materials } & \$ 12 \\\text { Direct 1abor } & 20 \\\text { Variable overhead } & 12 \\\text { Average fixed overhead } & \underline { 10} \\\quad \text { Total } & \underline { \underline { \$ 54 } }\end{array}$$ Which alternative is more profitable and by what amount?

• A) Buy, $150,000
• B) Make, $150,000
• C) Buy, $210,000
• D) Make, $210,000

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Definitions:

Corporate Bond Yields

The interest income received from holding corporate bonds, expressed as a percentage of the bond's price.

Eurodollars

US dollars deposited in banks outside the United States, often used for international transactions and investing.

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Bank deposits made in U.S. dollars rather than the local currency, often used by investors to avoid foreign exchange rate risk.

Foreign Bank

A bank based in a country other than the country it provides services in, often subject to both domestic and international banking regulations.