Super Cooper Company Currently Produces a Key Part at a Total

question 125

Multiple Choice

Super Cooper Company currently produces a key part at a total cost of $210,000. Variable costs are $170,000. Of the fixed cost, $10,000 relate specifically to this part. The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part for $190,000. The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $30,000. Alternately, the facilities could be rented out at $60,000. Given all of these alternatives, is Super Cooper's lowest net cost for the part.

• A) $170,000
• B) $180,000
• C) $130,000
• D) $190,000

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Definitions:

Normal Profits

The level of profit necessary to keep a firm in a specific industry or market in the long run, equating to the firm’s opportunity costs.

Profit-maximizing

A business strategy or operational mode where the primary goal is to achieve the maximum possible profits.

Total Profits

The sum total of income generated by a business after subtracting all costs and expenses.

Purely Competitive

A market structure characterized by many sellers offering identical products to many buyers, with no single seller or buyer able to influence the market price.