Cruise Company Produces a Part That Is Used in the Manufacture

question 64

Multiple Choice

Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows: Assume Cruise Company can purchase 6,000 units of the part from Suri Company for $14.00 each, and the facilities currently used to make the part could be used to manufacture 6,000 units of another product that would have an $8 per unit contribution margin. If no additional fixed costs would be incurred, what should Cruise Company do?

• A)Make the new product and buy the part to earn an extra $5.00 per unit contribution to profit.
• B)Make the new product and buy the part to earn an extra $6.00 per unit contribution to profit.
• C)Continue to make the part to earn an extra $2.00 per unit contribution to profit.
• D)Continue to make the part to earn an extra $4.00 per unit contribution to profit.

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Definitions:

Credit Score

A numerical expression based on a level analysis of a person's credit files, representing the creditworthiness of an individual.

Terms of Sale

The conditions under which a seller will sell and deliver goods to a buyer, detailing payment terms, delivery times, and other conditions of the sale.

Granting Credit

The process of providing a loan or other form of credit to a borrower or customer, often with specific terms and conditions.

Net Present Value

A calculation used to assess the profitability of an investment or project, considering the time value of money by discounting future cash flows to their present value.