A Firm Is Currently Buying a Part at a Cost

question 49

Multiple Choice

A firm is currently buying a part at a cost of $12 each. It is considering buying a machine that will produce the part at a variable cost of $8. Each unit of input produces the part plus a by-product, which is sold for $1. The machine will cost $40,000 and will have a useful life of 5 years. The firm requires an 8% return. What annual volume is necessary to justify making the investment? Ignore income taxes.

• A) 2,558 units
• B) 3,198 units
• C) 12,792 units
• D) 8,000 units

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Definitions:

Appropriate Situations

Contexts or circumstances that are considered suitable or fitting for a particular action, behavior, or decision.

Fleeting Smiles

Brief or transient expressions of happiness or satisfaction, usually shown on the face.

Sale of Goods Act

Legislation that regulates the sale of goods, establishing obligations for both sellers and buyers, including aspects such as the quality, description, and rights to reject.

Accounts Receivable

Funds owed to a business for goods or services provided to customers.