The Following Standard Costs Pertain to a Component Part Manufactured

question 80

Multiple Choice

The following standard costs pertain to a component part manufactured by Ashby Company: $$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 2 \\\hline \text { Direct labour } & 5 \\\hline \text { Manufacturing overhead } & \underline { 20 } \\\hline \text { Standard cost per unit } & \underline { \$ 27 } \\\hline\end{array}$$ The company can purchase the part from an outside supplier for $25 per unit. The manufacturing overhead is 60% fixed and this fixed portion would not be affected by this decision. Assume that direct labour is an avoidable cost in this decision. What is the relevant amount of the standard cost per unit to be considered in a decision of whether to make the part internally or buy it from the external supplier?

• A)$2.
• B)$27.
• C)$19.
• D)$15.

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Definitions:

Resource Prices

The costs associated with acquiring the inputs required for production, such as labor, materials, and capital.

Industry Production

Is the total output of goods and services produced by an industry over a specific period.

Constant-Cost Industry

An industry in which the input costs do not change significantly with changes in output levels, often resulting in stable product prices over time.

Long-Run Equilibrium

A state in which all factors of production and variables in a market are in balance over a longer period, with no external pressures prompting change.