Exhibit 22-2 JD Smith Company Is Operating at Less Than

question 69

Multiple Choice

Exhibit 22-2 JD Smith Company is operating at less than full capacity. The production manager is considering using this excess capacity to make a part that he usually buys. The full costs of manufacturing the part are as follows:
Up to now, the company has been buying 3,000 units of the part for a total of $115,000.
Refer to Exhibit 22-2. If JD Smith decided to make this product, its profit would:

• A) Decrease $5,000
• B) Decrease $23,000
• C) Increase $5,000
• D) Increase $23,000

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Definitions:

Base Period

A specific time period used as a reference point to measure changes in economic or financial indices over time.

Trend Analysis

The practice of collecting information and attempting to spot a pattern, often used in financial and market analysis.

Horizontal Analysis

A financial analysis technique that compares historical financial data across a series of periods to identify trends and changes.

Financial Statement Item

An individual line item or component that appears in a financial statement such as the balance sheet or income statement.