Tender Company Manufactures a Part for Its Production Cycle The Fixed Factory Overhead Costs Are Unavoidable

question 86

Multiple Choice

Tender Company manufactures a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: $\begin{array}{ll}\text { Direct materials } & \$ 3 \\\text { Direct labor } & 5 \\\text { Variable factory overhead } & 4 \\\text { Fixed factory overhead } & \underline{2} \\\text { Total costs } & \$ 14\end{array}$ The fixed factory overhead costs are unavoidable. Assume that Tender Company has been offered 5,000 units of the part from another producer for $15 each. The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year. Tender Company should:

• A) make the part to save $1 per unit
• B) make the part to save $3 per unit
• C) buy the part to save $3 per unit
• D) buy the part to save $1 per unit

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Definitions:

Volume Products

Products that are produced or sold in large quantities, often benefiting from economies of scale in production and distribution.

Demand Uncertainty

The unpredictability in the quantity and timing of customer demand for a product or service.

Flexible Source

A supply chain strategy that allows for the procurement of goods and services from multiple suppliers, enhancing adaptability and reducing dependency on single sources.

Forecast Accuracy

The degree to which a prediction or estimate corresponds to actual outcomes, often measured in the context of demand planning and supply chain management.