Sardi Incorporated Is Considering Whether to Continue to Make a Component

question 97

Multiple Choice

Sardi Incorporated is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 14,200 of the components each year. The unit product cost of the component according to the company's cost accounting system is given as follows: Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 30% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 1 minutes on the machine that is the company's current constraint. If the component were bought, time would be freed up for use on another product that requires 2 minutes on this machine and that has a contribution margin of $6.40 per unit.When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component? (Round your intermediate calculations to 2 decimal places.)

• A) $27.80 per unit
• B) $24.00 per unit
• C) $21.24 per unit
• D) $24.44 per unit

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Definitions:

Constant Rate

The steady, unchanging rate at which a quantity such as interest, growth, or decay progresses over time.

Dividend Yield

The ratio of a company's annual dividend payments to its share price, expressing the dividend as a percentage of the current share price.

Dividend Yield

A financial measure that represents the yearly dividend payout by a company compared to its stock price.

Expected Growth Rate

This is the rate at which a company, economy, or investment is anticipated to grow at an average annual rate over a specified period.