Use the Following Information to Answer the Questions Below

question 21

Multiple Choice

Use the following information to answer the questions below.
You currently make a part for old equipment at a cost of $20 / unit. The annual fixed cost for this equipment is $50,000. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year (see table) .

-Refer to the instruction above. What does the company save for the year by selecting the low-cost option (for annual requirements of 40,000 units) ?

• A) $150,000
• B) $300,000
• C) $50,000
• D) $40,000

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Definitions:

Net Price

The actual price paid for a product or service after deducting any discounts, rebates, or promotions.

Complement Method

Method of computing the net price directly, using the complement of the trade discount rate.

Trade Discounts

Discounts given to buyers that generally are based on the quantity purchased.

Net Price

The real cost incurred for a product or service once all discounts, rebates, or allowances have been subtracted.