Match Company Produces a Part That Is Used in the Manufacture

question 135

Multiple Choice

Match 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: $\begin{array}{lr}\text { Direct materials } & \$ 108,000 \\\text { Directlabor } & 156,000 \\\text { Variable factory overhead } & 72,000 \\\text { Fixed factory overhead } & 168,000 \\\text { Total costs } & \$ 504,000\end{array}$ Of the fixed factory overhead costs, $72,000 are avoidable.Match Company has offered to sell 5,000 units of the same part to Match for $86.40 per unit.Assuming there is no other use for the facilities, Match Company should _____.

• A)make the part to save $14.40 per unit
• B)buy the part to save $14.40 per unit
• C)buy the part to save the company $72,000
• D)make the part to save $4.80 per unit

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Definitions:

Marginal Cost

The increase in costs resulting from the manufacturing of one extra good or service.

Dominant Price Leader

A firm that has the largest market share within an industry and whose pricing decisions are often followed by other firms in the market.

Monopolist

An entity, individual, or company that is the sole supplier of a particular commodity or service in a market, often resulting in the power to control prices and market conditions.

Market Demand

The aggregate amount of a product or service that every customer in a market is prepared and able to buy at different price levels.