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

question 140

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:

FASB

The Financial Accounting Standards Board, an organization that establishes financial accounting and reporting standards in the United States.

AICPA

The American Institute of Certified Public Accountants, a professional organization for Certified Public Accountants (CPAs) in the United States.

Shares Of Stock

Shares of stock represent units of ownership interest in a corporation, giving shareholders a portion of the company's profits and assets.

Corporation

A legal entity that is separate and distinct from its owners, who are shareholders, and it has its own rights and liabilities distinct from those of its owners.