Max Company Uses 20,000 Units of Part a in Producing

question 157

Multiple Choice

Max Company uses 20,000 units of Part A in producing its products. A supplier offers to make Part A for $7. Max Company has relevant costs of $8 a unit to manufacture Part A. If there is excess capacity, the opportunity cost of not buying Part A from the supplier is

• A) $0.
• B) $20,000.
• C) $140,000.
• D) $160,000.

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Definitions:

Blanket

In a general context, a large fabric designed for warmth, but in various fields can mean a broad coverage or application of something.

Partial

Incomplete or not whole; affecting only a part of something.

Transfer for Value

In insurance law, the assignment or transfer of a policy from the original policy owner to another party in exchange for consideration.

Negotiation

The process of discussing terms in order to reach a mutually acceptable agreement.