Supler Corporation Produces a Part Used in the Manufacture of One

question 281

Multiple Choice

Supler Corporation produces a part used in the manufacture of one of its products. The unit product cost is $21, computed as follows: An outside supplier has offered to provide the annual requirement of 6,000 of the parts for only $14 each. The company estimates that 50% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the financial advantage (disadvantage) of purchasing the parts from the outside supplier would be:

• A) ($1) per unit on average
• B) $1 per unit on average
• C) $4 per unit on average
• D) ($7) per unit on average

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Definitions:

Quantity Demanded

The amount of a good or service consumers are willing and able to purchase at a given price level, during a specified period.

Quantity Supplied

The volume of goods or services that manufacturers are ready and able to supply at a specific price point within a set duration.

Excess Supply

A situation where the quantity of a good or service supplied exceeds the quantity demanded at the current price, often leading to a decrease in prices.

Blu-Ray Disc Rentals

The service of lending Blu-Ray discs, which contain high-definition movies or other content, to customers for a temporary period.