Textel Is Thinking About Having One of Its Products Manufactured $30 \%$

question 87

Multiple Choice

Textel is thinking about having one of its products manufactured by a subcontractor. Currently,the cost of manufacturing 1,000 units follows:
Direct materal..........................................545,000
Direct labor.................................................30,000
Factory overtead ( $30 \%$ is variable) ............98,000 If Textel can buy 1,000 units from a subcontractor for $100,000,it should:

• A)Make the product because current factory overhead is less than $100,000.
• B)Make the product because the cost of direct material plus direct labor of manufacturing is less than $100,000.
• C)Buy the product because the total incremental costs of manufacturing are greater than $100,000.
• D)Buy the product because total fixed and variable manufacturing costs are greater than $100,000.
• E)Make the product because factory overhead is a sunk cost.

---

Definitions:

Monopoly Price

The price a monopolist sets, which is typically higher than both marginal and average costs, maximizing profits due to lack of competition.

Remarkable Healing

An extraordinary or exceptional process of recovery from an injury or disease.

Reaction Function

Describes how one player in a game reacts to the strategy chosen by another player, often used in the study of oligopoly markets.

Cournot Solution

The Cournot Solution is an equilibrium concept in oligopoly theory where firms choose their output levels simultaneously and each firm's decision is based on the output levels of its competitors.