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:

Population Variance

A measure of the spread or distribution of a set of data values within an entire population.

Confidence Interval

A selection of values, extracted from sample analyses, believed to encompass the value of an unseen population parameter.

Sample Variance

The measure of dispersion within a sample data set, representing the average of the squared differences from the sample mean.

Chi-squared Distributed

A distribution used in hypothesis testing that is derived from the sum of squared deviations between observed and expected frequencies.