Melbourne Corporation Has Traditionally Made a Subcomponent of Its Major

question 17

Multiple Choice

Melbourne Corporation has traditionally made a subcomponent of its major product. Annual production of 30,000 subcomponents results in the following costs: Melbourne has received an offer from an outside supplier who is willing to provide the 30,000 units of the subcomponent each year at a price of $28 per unit. Melbourne knows that the facilities now being used to manufacture the subcomponent could be rented to another company for $80,000 per year if the subcomponent were purchased from the outside supplier. There would be no effect of this decision on the total fixed manufacturing overhead of the company. Assume that direct labor is a variable cost.At what price per unit charged by the outside supplier would Melbourne be indifferent between making or buying the subcomponent?

• A) $29 per unit
• B) $25 per unit
• C) $21 per unit
• D) $24 per unit

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Definitions:

Vague

Lacking clarity or preciseness in thought or expression, resulting in ambiguity or obscurity of meaning.

Specific

Clearly defined or identified; particular and distinct.

LMX Theory

Leadership-Member Exchange, a theory positing that leaders develop different relationships with various subordinates, resulting in unique dyadic exchanges marked by varying degrees of mutual trust, respect, and obligation.

Affective Events

Describes events that provoke strong emotional reactions, which can significantly impact employee behavior and attitudes in the workplace.