Cerise Corporation Manufacturers a Part for Its Production Cycle Jade Company Has Offered to Sell Cerise Corporation 5,000 Units

question 87

Multiple Choice

Cerise Corporation manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: $$\begin{array} { l r } \text { Direct materials } & \$ 16 \\\text { Direct labor } & 20 \\\text { Variable overhead } & 8 \\\text { Fixed overhead } & 16 \\\text { Total } & \$ 60\end{array}$$ Jade Company has offered to sell Cerise Corporation 5,000 units of the part for $56 per unit. If Cerise Corporation accepts Jade Company's offer, total fixed costs will be reduced to $30,000. Which of the following is correct decision and correct increase in profit?

• A)Buy, $50,000
• B)Buy, $20,000
• C)Make, $10,000
• D)Buy, $10,000

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Definitions:

Production Departments

Specific areas or divisions within a manufacturing facility where production activities related to goods are carried out.

Factory Overhead Rate

A calculation used to allocate all indirect manufacturing costs to produced goods.

Multiple Production Department Factory Overhead Rate

A method to allocate factory overhead costs to multiple production departments based on specific measures such as labor hours or machine hours.

Fabrication Department

A specialized division within a company where raw materials are converted into components or products through various processes.