Crispy Company Manufactures a Part for Its Production Cycle The Fixed Factory Overhead Costs Are Unavoidable

question 53

Multiple Choice

Crispy Company manufactures a part for its production cycle.The costs per unit for 5,000 units of this part are as follows: $\begin{array} {ll}\text {Direct materials}&\$3\\\text {Directlabor}&5\\\text {Variable factory overhead}&4\\\text {Fixed factory overhead}&2\\\text {Total costs}&\$14\\\end{array}$ The fixed factory overhead costs are unavoidable.Assume that Crispy Company has been offered 5,000 units of the part from another producer for $15 each.The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year.Crispy Company should _____.

• A)make the part to save $1 per unit
• B)buy the part to save $3 per unit
• C)buy the part to save $1 per unit
• D)make the part to save $3 per unit

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Definitions:

Corporation

A legal entity created under state law, considered distinct from its owners, that can own property, incur debt, sue and be sued.

Service of Process

The procedure by which a party to a lawsuit gives an appropriate notice of initial legal action to another party, court, or administrative body.

President

The elected head of a Republican state or the chief executive officer of a company or organization.

Agent

An individual authorized to act on behalf of another person or entity, often in a legal or business setting.