Max Company Uses 20,000 Units of Part a in Producing

question 157

Multiple Choice

Max Company uses 20,000 units of Part A in producing its products. A supplier offers to make Part A for $7. Max Company has relevant costs of $8 a unit to manufacture Part A. If there is excess capacity, the opportunity cost of not buying Part A from the supplier is

• A) $0.
• B) $20,000.
• C) $140,000.
• D) $160,000.

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Definitions:

Exercise Price

The specified price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying security or commodity.

Warrant

A financial instrument that gives the holder the right, but not the obligation, to buy a company's stock at a predetermined price before a specified date.

Trading

The act of buying, selling, or exchanging financial instruments, such as stocks, bonds, or derivatives, typically in financial markets.

Zero Correlation

A statistical term indicating no linear relationship between two variables, meaning one variable does not predict the movement of the other.