Plainfield Company Manufactures Part G for Use in Its Production

question 85

Multiple Choice

Plainfield Company manufactures part G for use in its production cycle. The costs per unit for 10,000 units of part G are as follows: Verona Company has offered to sell Plainfield 10,000 units of part G for $30 per unit. If Plainfield accepts Verona's offer, the released facilities could be used to save $45,000 in relevant costs in the manufacture of part H. In addition, $5 per unit of the fixed overhead applied to part G would be totally eliminated. What alternative is more desirable and by what amount?

• A)Option A
• B)Option B
• C)Option C
• D)Option D

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Definitions:

Consumption

The use of goods and services by households or individuals, often measured to understand economic activity and consumer behavior.

Bushels

A unit of volume measure used primarily for agricultural products, with the size varying by product.

Investment

The allocation of resources, usually financial, in the expectation of generating an income or profit, including purchases of financial instruments or capital assets.

Interest Rate

The amount of a loan that is subject to interest charges for the borrower, often shown as a yearly percentage.