Fornelli, Inc If Fornelli, Inc

question 67

Multiple Choice

Fornelli, Inc.can produce 100 units of a component part with the following costs: $$\begin{array} { l r } \text { Direct Materials } & \$ 15,000 \\\text { Direct Labor } & 6,500 \\\text { Variable Overhead } & 16,000 \\\text { Fixed Overhead } & 11,000\end{array}$$ If Fornelli, Inc.can purchase the component part externally for $44,000 and only $4,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

• A)Make and save $500
• B)Buy and save $500
• C)Make and save $2,500
• D)Buy and save $6,500

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Definitions:

Value-Added

The enhancement added to a product or service by a company before offering it to customers, representing the difference between the cost of inputs and the value of outputs.

Lean Principles

A management philosophy focused on minimizing waste within manufacturing systems while simultaneously maximizing productivity.

Service Businesses

Companies that provide intangible products or services, such as consulting, repair, or maintenance.

Non-Value-Added

Processes or activities that do not add value or contribute to the customer's perceived value of a product or service.