Cardinal Company Needs 20,000 Units of a Certain Part to Use

question 66

Multiple Choice

Cardinal Company needs 20,000 units of a certain part to use in one of its products.The following information is available: Oriole Company has offered to sell this part to Cardinal company for $36 each.If Cardinal buys the part from Oriole instead of making it,Cardinal would not have any use for the released capacity.In addition,60% of the fixed manufacturing overhead costs will continue regardless of what decision is made.Assume that direct labour is an avoidable cost in this decision.In deciding whether to make or buy the part,the total relevant costs to make the part are:

• A) $560,000.
• B) $640,000.
• C) $720,000.
• D) $760,000.

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Definitions:

Casting

A process in manufacturing where a liquid material is poured into a mold which contains a hollow cavity of the desired shape and then allowed to solidify.

Assembly

The process of putting together various components or materials to create a finished product.

Predetermined Overhead Rates

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders based on a chosen activity base.

Machine-Hours

A measure of production time, reflecting the total hours machines are operated in the manufacturing process.