The Following Standard Costs Pertain to a Component Part Manufactured

question 19

Multiple Choice

The following standard costs pertain to a component part manufactured by Ashby Company: The company can purchase the part from an outside supplier for $25 per unit.The manufacturing overhead is 60% fixed and this fixed portion would not be affected by this decision.Assume that direct labour is an avoidable cost in this decision.What is the relevant amount of the standard cost per unit to be considered in a decision of whether to make the part internally or buy it from the external supplier?

• A) $2.
• B) $15.
• C) $19.
• D) $27.

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Definitions:

Production Technique

The method or process used to produce goods or services, often involving particular technologies or strategies.

Economically Efficient

A state where resources are allocated in a way that maximizes the net benefit to society.

Market System

A financial system where investment, production, and distribution decisions are dictated by price signals resulting from the interplay of supply and demand forces.

Fundamental Question

Fundamental Question refers to the basic questions any economic system must answer, which include what to produce, how to produce, and for whom to produce.