DC Electronics Uses a Standard Part in the Manufacture of Several

question 86

Multiple Choice

DC Electronics uses a standard part in the manufacture of several of its radios. The total cost of producing 30 000 parts is $90 000, which includes fixed costs of $33 000 and variable costs of $57 000. The company can buy the part from an outside supplier for $2.50 per unit, and avoid 30% of the fixed costs.
If DC Electronics decides to outsource the production of the part, how will it impact profit?

• A)Up $15 000
• B)Up $132 000
• C)Down $132 000
• D)Down $24 900

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Definitions:

Greenmail

A strategy where a company pays a premium to buy back its own stock from a corporate raider to prevent a hostile takeover.

Legal Device

A legal tool or method used to meet a requirement, enforce a right, or manage a legal process.

Hostile Takeover

A situation where a company is acquired by another company without the consent of the former company's management.

Poison Pill

A strategy used by companies to prevent or discourage hostile takeovers by making the company less attractive to the potential acquirer.