Zouar Computer Corporation Currently Manufactures the Disk Drives That It

question 340

Multiple Choice

Zouar Computer Corporation currently manufactures the disk drives that it uses in its computers. The costs to produce 5,000 of these disk drives last year were as follows: Kidal Electronics has offered to provide Zouar with all of its disk drive needs for $27 per drive. If Zouar accepts this offer, Zouar will be able to use the freed up space to generate an additional $40,000 of income each year to produce more of its computer keyboards. Only $3 per drive of the fixed manufacturing overhead cost above could be avoided. Direct labor is an avoidable cost in this decision. Based on this information, would Zouar be financially better off making the drives or buying the drives and by how much?

• A) $15,000 better to buy
• B) $20,000 better to buy
• C) $35,000 better to buy
• D) $60,000 better to make

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Definitions:

Viscous Lava

Lava that has a thick, sticky consistency due to a high silica content, flowing slowly.

Lava Fountain

A spectacular volcanic phenomenon where lava is forcefully ejected into the air from a vent or fissure, forming a fountain-like display.

Fluid Lava

describes lava with low viscosity that flows easily, typically associated with less explosive volcanic eruptions.

Felsic Magmas

Magmas that are rich in lighter elements like silicon and oxygen, usually linked with explosive volcanic eruptions due to their high viscosity and trapped gases.