Sardi Incorporated Is Considering Whether to Continue to Make a Component

question 292

Multiple Choice

Sardi Incorporated is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 17,000 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, 70% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 2 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 4 minutes on this machine and that has a contribution margin of $7.00 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) $24.21 per unit
• B) $25.50 per unit
• C) $20.71 per unit
• D) $22.00 per unit

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Definitions:

Ducts

Passages or tubes that carry fluids from one area to another in the body or in other organisms, often relating to glands or excretory systems.

Coiled

Shaped into a series of spirals or concentric rings.

Sense Organ

A sense organ is a specialized body part that processes external stimuli, making perception possible. This includes organs like eyes, ears, nose, skin, and tongue.

Fovea

Retina region with the greatest density of cone cells; has no rod cells.