Rochester Company Makes a Product Called Z3 as Part of Its

question 86

Multiple Choice

Rochester Company makes a product called Z3 as part of its manufacturing process.The variable costs of making Z3 are as follows:
Direct materials $8
Direct labor $12
Variable overhead $20
The Toronto Corp. has offered to sell 10,000 units of Z3 to Rochester at a price of $40 per unit. If Rochester agrees to this deal, Rochester will also be able to reduce its fixed costs by $50,000. Rochester should:

• A) Make Z3: The savings are $50,000.
• B) Make Z3: The savings are $100,000.
• C) Buy Z3: The savings are $100,000.
• D) Buy Z3: The savings are $50,000.
• E) There is no difference in profits between making or buying Z3.

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Definitions:

Junk Foods

Foods with low nutritional value, typically high in fats, sugars, salt, and calories.

Health Maintenance Organization

An organization that provides or arranges managed care for health insurance, self-funded healthcare benefit plans, individuals, and other entities, on a prepaid basis.

Preferred Provider Organization

A type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers; you pay less if you use providers that belong to the plan’s network.

Health Care Organization

An institution that provides medical services, ranging from preventive care to treatment and management of illnesses and diseases.