Mickleson Company Produces a Part That Is Used in the Manufacture

question 54

Multiple Choice

Mickleson 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.Assume that Mickleson Company can buy 5,000 units of the part from another producer for $100.80 each.The current facilities could be used to make 5,000 units of a product that has a contribution margin of $24 per unit.Fixed factory overhead costs to produce this new product would be the same as for the currently produced part.Mickleson Company should _____.

• A)continue to make the part and earn an extra $48,000 in profit
• B)buy the part, produce the new product, and earn an extra $4.80 per unit contribution to profit
• C)continue to make the part and earn an extra $4.80 per unit contribution to profit
• D)buy the part, produce the new product, and earn an extra $24 per unit contribution to profit

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Definitions:

Introspection

A methodological technique in which trained observers are asked to reflect on, and report on, their conscious experience while performing cognitive tasks.

Consciousness

The state of being aware of and able to think about one's own existence, sensations, thoughts, and environment.

Nonjudgmental Observation

Nonjudgmental observation involves noticing and acknowledging thoughts, feelings, and sensations without attaching judgment or analysis.

Working Backward

A problem-solving technique that identifies the final goal and the steps, in reverse order, that are necessary to reach the goal.