Use the Following Data for the Next 2 Questions

question 40

Multiple Choice

Use the following data for the next 2 questions:
A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 per unit. The regular price is $10 per unit. No other use of the currently idle capacity can be found. The manufacturer's usual variable costs per unit are $3.50 for direct materials, $2.00 for direct labor, $1.00 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25.
-Each year Wright's Widgets buys 10,000 subcomponents that it needs in the production of its widgets from an outside supplier for $15 each. If Wright instead used its existing idle capacity to produce it in-house, the variable production costs would be $8 per unit and $3 of fixed production overhead would be allocated to each unit. Additionally, Wright would need to hire one quality control technician for $28,000 per year. The excess capacity that would be required is currently leased to another company for $25,000 per year. What is the advantage or disadvantage if Wright continues to buy the subcomponent from the outside supplier?

• A) $13,000 advantage
• B) $17,000 disadvantage
• C) $37,000 advantage
• D) $3,000 disadvantage

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Definitions:

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A decade marked by significant economic, political, and cultural events, including the end of the Cold War, the rise of neoliberal economic policies, and significant technological advancements.

Automatic Stabilizer

Measures and plans intended to balance the ups and downs in a country's economy without needing more government involvement.

Welfare Payments

Government-provided financial aid to individuals or families, intended to support those who are unable to support themselves.