Floyd Company Produces a Part That Is Used in the Manufacture

question 75

Multiple Choice

Floyd Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 108,000 \\\text { Direct labor } & 156,000 \\\text { Variable factory overhead } & 72,000 \\\text { Fixed factory overhead } & \underline{168,000} \\\text { Total costs } & \underline{\$ 504,000} \\\end{array}$ Of the fixed factory overhead costs, $72,000 is avoidable. Assume that Floyd Company can buy 5,000 units of the part from another producer for $105.60 each. The facilities currently used to make the part could be rented out to another manufacturer for $72,000 a year. Floyd Company should:

• A) buy the part to save the company $72,000
• B) make the part to save the company $24,000
• C) buy the part to save $14.40 per unit
• D) make the part to save $19.20 per unit

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Definitions:

Job Evaluation Method

A systematic process for determining the relative worth of jobs within an organization by analyzing their duties, responsibilities, and requirements.

Compensable Factors

Elements of a job that are used to determine appropriate compensation, such as skill level, effort, responsibility, and working conditions.

Skills

Abilities and expertise that individuals possess, which enable them to perform tasks effectively.

Responsibilities

Duties or tasks that an individual or organization is expected to handle or carry out.