Daly Company Produces a Part That Is Used in the Manufacture

question 36

Multiple Choice

Daly Company produces a part that is used in the manufacture of one of its products.The costs associated with the production of 5,000 units of this part are as follows: $\begin{array}{lr}\text { Direct materials } & \$ 108,000 \\\text { Direct labor } & 156,000 \\\text { Variable factory overhead } & 72,000 \\\text { Fixed factory overhead } & 168,000 \\\text { Total costs } & \$ 504,000\end{array}$ Of the fixed factory overhead costs, $72,000 is avoidable.Assuming no other use of their facilities, the highest price that Daly Company should be willing to pay for 5,000 units of the part is _____.

• A)$504,000
• B)$336,000
• C)$408,000
• D)$288,000

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Definitions:

External Financing

Funds a company seeks from outside sources, such as loans, investor equity, or bonds, to finance its activities.

Internal Growth Rate

The maximum rate at which a company can expand its operations using only internally generated revenue and without resorting to external financing.

Equity Multiplier

A financial ratio that measures the portion of a company's assets financed by stockholders' equity, reflecting financial leverage.

Cash Dividends

Payments made by a company out of its profits to its shareholders, usually on a periodic basis.