Wilson Is Currently Producing a Component for One of Its

question 36

Multiple Choice

Wilson is currently producing a component for one of its products.Wilson has received an offer to buy the component from an outside supplier.A machine is currently being rented to manufacture the component.If the company buys the component, the rental will be cancelled.What is the rent on the machine, in relation to the decision to make or buy the component?

• A)Sunk and therefore not relevant
• B)Avoidable and therefore not relevant
• C)Avoidable and therefore relevant
• D)Unavoidable and therefore relevant

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Definitions:

Management

Management refers to the coordination and administration of tasks to achieve a goal, including planning, organizing, staffing, directing, and controlling organizational resources.

Consistency

In accounting, the principle that ensures financial statements are comparable across periods by applying the same accounting methods and policies.

Relevant

Pertaining to information or factors that are applicable to the current decision-making process, specifically those that influence economic outcomes.

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not influence future business decisions.