Billings Company Has the Following Costs When Producing 100,000 Units $$\begin{array} { l r } \text { Variable costs } & \$ 600,000 \\\text { Fixed costs } & 900,000\end{array}$$

question 25

Multiple Choice

Billings Company has the following costs when producing 100,000 units: $$\begin{array} { l r } \text { Variable costs } & \$ 600,000 \\\text { Fixed costs } & 900,000\end{array}$$ An outside supplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $165,000. The net increase (decrease) in the net income of accepting the supplier's offer is

• A) $285,000.
• B) $315,000.
• C) $(15,000).
• D) $840,000.

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Definitions:

Opportunity Costs

Missing out on potential benefits from various options due to the selection of a single alternative.

Trade

The practice, in a market economy, in which individuals provide goods and services to others and receive goods and services in return.

Specialize

Specialize refers to the process of focusing efforts and resources on a narrow area of expertise or production to gain efficiency, higher quality, or other advantages.

Comparative Advantage

An economic principle that states a country or individual can produce goods at a lower opportunity cost than others, leading to more efficient global trade outcomes.