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

question 52

Multiple Choice

Goldwater Company manufactures a part for its production cycle.The costs per unit for 10,000 units of this part are as follows: $\begin{array}{lr}\text { Direct materials } & \$ 20 \\\text { Directlabor } & 15 \\\text { Variable factory overhead } & 16 \\\text { Fixed factory overhead } & 10 \\\text { Total costs } & \$ 61 \\\hline\end{array}$ The fixed factory overhead costs are unavoidable.Assume that Goldwater Company can buy 10,000 units of the part from another producer for $56 each.The current facilities could be used to make 10,000 units of a product that has a contribution margin of $20 per unit.No additional fixed costs would be incurred.Goldwater Company should _____.

• A)make the new product and buy the part to earn an extra $5 per unit contribution to profit
• B)continue to make the part to earn an extra $5 per unit contribution to profit
• C)continue to make the part to earn an extra $15 per unit contribution to profit
• D)make the new product and buy the part to earn an extra $15 per unit contribution to profit

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Definitions:

Creativity

The ability to generate new and innovative ideas or solutions to problems.

Commitment

The state or quality of being dedicated to a cause, activity, or goal.

Strategic Plans

Long-term visions and goals of an organization, together with the strategies to achieve them.

Operational Plans

Detailed plans formulated at a lower level of the organization to implement strategic objectives through day-to-day operations.