Benitez Company Currently Outsources a Relay Switch That Is a Component

question 53

Multiple Choice

Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $20 each. The company is considering making the switches internally at the following projected annual production costs: $\begin{array}{llr} \text { Unlt-level materlal cost } &\$3\\ \text { Unit-level labor cost } &\$2\\ \text { Unit-level overhead } &\$1\\ \text { Batch-level set-up cost ( 5,000 units per batch) } &\$25,000\\ \text {Product-level supervisory salaries } &\$37,500\\ \text { allocated facilitv-level costs } &\$20,000\\\end{array}$
The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $1,500 a month. If the company decides to make the parts, total costs will be:

• A) $10,500 more than if the switches are purchased.
• B) $27,000 less than if the switches are purchased.
• C) $20,000 less than if the switches are purchased.
• D) $30,500 more than if the switches are purchased.

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Definitions:

Selling Division

A segment or branch of a company responsible for the sale of its products or services, often structured to focus on specific markets or product lines.

Outside Customers

Individuals or entities that purchase goods or services but are not part of the providing organization.

Minimal Acceptable

The least favorable condition or outcome that is still considered sufficient to meet a specific requirement or standard.

Transfer Price

The price at which goods and services are traded between the various divisions of the same company.