Factor Co Can Produce a Unit of Product for the Following

question 41

Multiple Choice

Factor Co. can produce a unit of product for the following costs: $\begin{array}{llcc} \text { Direct material } &\$8\\ \text { Direct labor } &24\\ \text { Overhead } &\underline{40}\\ \text {Total costs per unit } &\$72\\\end{array}$

An outside supplier offers to provide Factor with all the units it needs at $46 per unit. If Factor buys from the supplier, the company will still incur 60% of its overhead. Factor should choose to:

• A) Buy since the relevant cost to make it is $56.
• B) Make since the relevant cost to make it is $48.
• C) Buy since the relevant cost to make it is $48.
• D) Make since the relevant cost to make it is $32.
• E) Buy since the relevant cost to make it is $32.

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Definitions:

Cost of Goods Sold

The total cost directly attributed to the production of goods that were sold, including materials, labor, and overhead.

Overapplied Overhead

A situation where the overhead allocated to products or services is more than the actual overhead costs incurred.

Factory Equipment

The machinery and tools used in the manufacturing process of a product, typically considered a long-term asset.

Administrative Expense

Costs related to the general operation of a company, such as salaries of executive personnel, office supplies, and utilities, not directly related to production or sales.