Galley Industries Can Produce 100 Units of a Necessary Component

question 47

Multiple Choice

Galley Industries can produce 100 units of a necessary component part with the following costs: $$\begin{array} { l r } \text { Direct Materials } & \$ 20,000 \\\text { Direct Labor } & 9,000 \\\text { Variable Overhead } & 21,000 \\\text { Fixed Overhead } & 8,000\end{array}$$ If Galley Industries purchases the component externally, $2,000 of the fixed costs can be avoided. Below what external price for the 100 units would Galley choose to buy instead of make?

• A)$50,000
• B)$56,000
• C)$44,000
• D)$52,000

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Definitions:

World Price

The world price is the price at which goods are traded internationally, determined by global supply and demand conditions.

Government Payments

Funds distributed by the government to individuals, businesses, or other governmental entities, which can include subsidies, grants, or welfare payments.

Point Elasticity

A measure of how responsive the quantity demanded or supplied of a good is to a change in its price, calculated at a particular point on the demand or supply curve.

Producer Surplus

The profit producers make over and above the minimum amount they would be willing to accept for selling their goods or services.