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

question 72

Multiple Choice

Cardinal Company needs 20,000 units of a certain part to use in one of its products.The following information is available: Cost to Cardinal to make the part: $\begin{array}{l}\begin{array}{lll}\text { Direct Materials}\\\text { Direct Labour}\\\text { Variable Manufacturing Overhead}\\\text { Fixed Manufacturing Overhead}\\\\\text { Cost to buy the part from the Oriole Company: }\\\end{array}\begin{array}{lll}\$ 4 \\\$ 16 \\\$ 8 \\\$ 10 \\\$ 38 \\\$ 36\end{array}\end{array}$


Oriole Company has offered to sell this part to Cardinal Company for $36 each.If Cardinal were to buy 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 would 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,what would be the total relevant costs to make the part?

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

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Definitions:

Earnings Per Share

A financial metric that calculates the portion of a company's profit allocated to each outstanding share of common stock, indicating the company's profitability.

Stock Repurchase

A transaction in which a company buys back its own shares from the market, often to increase the value of remaining shares by reducing the supply.

Excess Cash

Funds that exceed the normal operating needs of a company, potentially available for investment or distribution to shareholders.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from its total revenue.