Vista Industries Manufactures 75,000 Digital Cameras Each Year

question 149

Multiple Choice

Vista Industries manufactures 75,000 digital cameras each year.Vista has been producing the lenses internally.However, late last year the company received an offer to produce the 150,000 lenses the company uses each year for a total contract price of $380,000.When Vista manufactures the lenses internally, direct materials cost $1.05 per lens, direct labor is $0.65 per lens, and variable overhead is $0.30 per lens.Vista's total overhead is $110,000.If the lens were purchased, $28,000 of fixed overhead could be avoided.Should Vista purchase or produce the lenses, and what is the savings associated with the decision?

• A)Purchase the lenses and save $52,000
• B)Produce the lenses and save $52,000.
• C)Purchase the lenses and save $2,000.
• D)Produce the lenses and save $2,000.

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Definitions:

Transfer Price

The cost at which products or services are exchanged between departments within the same corporation or among associated companies.

Pump Division

A specific sector or unit within a company that focuses on the production or sale of pumps.

Pool Products Division

A specialized business unit within a company that focuses on the development, manufacture, and distribution of products for pools, including chemicals, pumps, and accessories.

Service Departments

Units within an organization that support the production process but do not directly engage in manufacturing activities.