Gecko Company Is Evaluating the Use of a Supplier Versus

question 61

Multiple Choice

Gecko Company is evaluating the use of a supplier versus making the wheels for its skateboards internally.The currently manufactured wheels have a variable unit cost of $2.Fixed costs are $16,000 per month, however, 25% can be eliminated if wheels are no longer produced.A supplier has offered to produce this part for $3 per wheel and can produce the 3,200 wheels for the 800 skateboards needed monthly.Should Gecko outsource wheels or make them internally?

• A)Outsource because the incremental cost savings is $12,800.
• B)Make the product because the incremental cost savings is $3,200.
• C)Outsource because the incremental cost savings is $800.
• D)Outsource because the incremental cost savings is $8,800.

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Definitions:

Charge Account

A type of credit account that requires the full payment of the bill at the end of a billing cycle.

Creditor Responds

The process by which a creditor reacts or takes action in response to a debtor's payment behavior or proposal.

Bloomingdale's Credit Card

A branded credit card specifically for use at Bloomingdale's department stores, offering various benefits and rewards to cardholders.

Charged

In a legal context, it refers to formally accusing someone of a crime. In finance, it might refer to incurring a debt or a financial obligation.