Ruth Company Produces 1000 Units of a Necessary Component with the Following

question 28

Multiple Choice

Ruth Company produces 1000 units of a necessary component with the following costs: $$\begin{array} { l r } \text { Direct Materials } & \$ 34,000 \\\text { Direct Labor } & 15,000 \\\text { Variable Overhead } & 9,000 \\\text { Fixed Overhead } & 10,000\end{array}$$ Ruth Company could avoid $6000 in fixed overhead costs if it acquires the components externally.If cost minimization is the major consideration and the company would prefer to buy the components what is the maximum external price that Ruth Company would accept to acquire the 1000 units externally?

• A)$58000
• B)$64000
• C)$59000
• D)$62000

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Definitions:

Long-Term Investments

Investments made with the intention of holding the asset for a period exceeding one year, typically to earn interest, dividends, or capital gains.

Internal Rate of Return

A metric used in capital budgeting to estimate the profitability of potential investments, represented as the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Net Present Value

A valuation method that calculates the present value of expected future cash flows minus the initial investment cost.

Capital Investment Project

A project requiring significant amounts of capital for the purchase, improvement, or maintenance of long-term assets to generate future benefits.