Bell's Shop Can Make 1,000 Units of a Necessary Component

question 81

Multiple Choice

Bell's Shop can make 1,000 units of a necessary component with the following costs: $\begin{array}{lr}\text { Direct Materials } & \$ 24,000 \\\text { Direct Labor } & 6,000 \\\text { Variable Overhead } & 3,000 \\\text { Fixed Overhead } & ?\end{array}$ The company can purchase the 1,000 units externally for $39,000.The unavoidable fixed costs are $2,000 if the units are purchased externally.An analysis shows that at this external price, the company is indifferent between making or buying the part.What are the fixed overhead costs of making the component?

• A)$8,000
• B)$6,000
• C)$4,000
• D)Cannot be determined.

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Definitions:

Competitive Equilibrium

A market condition where supply meets demand, with prices stabilizing at a level where the quantity demanded equals the quantity supplied.

Monopoly

A market structure characterized by a single seller or producer supplying a unique product or service, with no close substitutes, giving them significant control over the market price.

Usury Law

Regulations governing the maximum interest rates that can be charged on loans, aimed at preventing lending practices deemed exploitative.

Market Rate

The prevailing price or interest rate at which goods, services, or securities are traded in a competitive marketplace.