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

question 44

Multiple Choice

Ruth Company produces 1,000 units of a necessary component with the following costs: $$\begin{array} { l r } \text { Direct Materials } & \$ 27,000 \\\text { Direct Labor } & 16,000 \\\text { Variable Overhead } & 4,000 \\\text { Fixed Overhead } & 7,000\end{array}$$ None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 if the components were acquired 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 be willing to accept to acquire the 1,000 units externally?

• A) $46,000
• B) $58,000
• C) $51,000
• D) $55,000

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Definitions:

Reabsorption

The process by which the kidneys filter blood and reabsorb essential nutrients and water back into the bloodstream, while excreting waste products.

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The temporary care of children by someone other than their parents or guardians, typically provided for a short period.

Stressors

Events, situations, or stimuli that cause stress, challenging an individual's ability to cope and potentially affecting health and well-being.