Hoopster Company Produces a Part That Is Used in the Manufacture

question 29

Multiple Choice

Hoopster 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 are avoidable. Knight Company has offered to sell 5,000 units of the same part to Hoopster for $86.40 per unit. Assuming there is no other use for the facilities, Hoopster Company should:

• A) make the part to save $4.80 per unit
• B) make the part to save $14.40 per unit
• C) buy the part to save $14.40 per unit
• D) buy the part to save the company $72,000

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Definitions:

Perpetual Inventory System

A method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.

Journal Entries

Transactions registered in a ledger that form the basis of all financial reporting and accounting.

Adjusting Entries

Journal entries made in accounting records at the end of an accounting period to update the accounts for accruals and deferrals.

Income Statement

A financial statement that shows a company's revenue and expenses over a specific period, resulting in net income or loss.