Pitkin Company Produces a Part Used in the Manufacture of One

question 7

Multiple Choice

Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows: $$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 12 \\\hline \text { Direct labour } & 8 \\\hline \text { Variable manufacturing overhead } & 3 \\\hline \text { Fixed manufacturing overhead } &10\\\hline \text { Unit product cost } & \underline { 33 } \\\hline\end{array}$$ An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labour is an avoidable cost in this decision. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:

• A)$1 advantage.
• B)$3 advantage.
• C)$4 disadvantage.
• D)$1 disadvantage.

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Definitions:

Report Card

A document summarizing a student's performance academically over a specific period, usually including grades or marks.

Negative Reinforcement

A behavioral concept where the removal of an adverse stimulus strengthens a desired behavior or response.

Pleasant Stimulus

Any event, object, or situation that causes a positive emotional response.

Unpleasant Stimulus

refers to any object, event, or situation that is undesirable or causes discomfort, leading to avoidance behavior in individuals.