Ruth Company Produces 1,000 Units of a Necessary Component with the Following

question 103

Multiple Choice

Ruth Company produces 1,000 units of a necessary component with the following costs: $$\begin{array} { l r } \text { Direct Materials } & \$ 34,000 \\\text { Direct Labor } & 15,000 \\\text { Variable Overhead } & 9,000 \\\text { Fixed Overhead } & 10,000\end{array}$$ Ruth Company could avoid $6,000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would accept to acquire the 1,000 units externally?

• A) $58,000
• B) $64,000
• C) $59,000
• D) $62,000

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Definitions:

Retained Earnings

The portion of a company's profits not distributed as dividends to shareholders, but instead reinvested in the business or held as reserves.

Assets

Assets are resources owned by a business or individual, which provide economic value or are expected to generate future benefit.

Revenues

The income generated from normal business operations and includes discounts and deductions for returned merchandise.

Limited Liability

A legal structure that limits the financial liability of owners or shareholders of a business to the amount they've invested, protecting personal assets from business debts.