Fornelli, Inc

question 4

Multiple Choice

Fornelli, Inc. can produce 100 units of a component part with the following costs: 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:

Supplies

Supplies refer to items used in the regular operation of a business that are not directly part of finished goods.

Liabilities

Liabilities refer to the financial obligations of a business or an individual, encompassing all debts and amounts owed to others.

GAAP

Generally Accepted Accounting Principles, which are a set of rules and standards designated for accounting practices and financial reporting in the U.S.

Debts

Obligations of an entity arising from past transactions or events, requiring the entity to transfer assets or provide services to other entities in the future.