A Manufacturer Is Contemplating a Switch from Buying to Producing

question 129

Multiple Choice

A manufacturer is contemplating a switch from buying to producing a certain item. Setup cost would be the same as ordering cost. The production rate would be about double the usage rate. Compared to the EOQ, the maximum inventory would be approximately

• A)70 percent higher.
• B)30 percent higher.
• C)the same.
• D)30 percent lower.
• E)70 percent lower.

Apply the concepts of present value and future value to various financial transactions.

Differentiate between types of leases and their accounting treatment.

Recognize and account for contingent liabilities and their disclosure requirements.

Understand working capital, accounts payable, and their turnover ratios.

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Definitions:

Simulation Heuristic

The tendency to judge the frequency or likelihood of an event by the ease with which you can imagine (or mentally simulate) it.

Representativeness Heuristic

The tendency to judge the frequency or likelihood of an event by the extent to which it resembles the typical case.

Actor/observer Bias

The tendency to attribute one's own actions to external factors while attributing others' actions to their character or disposition.

Heuristics

Mental shortcuts or rules of thumb that simplify decision-making processes but sometimes lead to biased or inaccurate judgments.