Fornelli, Inc If Fornelli, Inc

question 142

Multiple Choice

Fornelli, Inc. can produce 100 units of a component part with the following costs: $$\begin{array} { l r } \text { Direct Materials } & \$ 15,000 \\\text { Direct Labor } & 6,500 \\\text { Variable Overhead } & 16,000 \\\text { Fixed Overhead } & 11,000\end{array}$$ If Fornelli, Inc. can purchase the component part externally for $44,000 and only $4,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

• A) Make and save $500
• B) Buy and save $500
• C) Make and save $2,500
• D) Buy and save $6,500

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Definitions:

Constant Rate

This term refers to a fixed rate over a period of time, often used in the context of financial instruments with fixed interest rates.

Projected Increase

An estimate or forecast of the amount by which something is expected to grow within a certain time frame.

Required Rate of Return

The minimum annual return percentage necessary to attract individual or corporate investment into a specific security or project is known as the required rate of return.

Constant Growth Rate

The assumption that a variable, such as a company’s dividends or economy, will grow at a consistent rate over time.