Easton Company Makes and Sells Scooters Easton Can Currently Purchase the Scooters It Makes from Weston

question 12

Multiple Choice

Easton Company makes and sells scooters.Easton incurred the following costs in its most recent fiscal year: $\begin{array}{|l|l|}\hline{\text { Cost Items Appearing }} & \text { on the Income Statement } \\\hline \text { Materials cost (\$10 per unit) } & \text { Depreciation on manufacturing equipment } \\\hline \text { Company president's salary } & \text { Salaries of administrative personnel } \\\hline \text { Labor cost (\$4 per unit) } & \text { Research and development costs } \\\hline \text { Advertising costs }(150,000 \text { per vear) } & \text { Real estate taxes on factory } \\\hline \text { Shipping and handling (\$0.15 per unit) } & \text { Inspection costs } \\\hline\end{array}$ Easton can currently purchase the scooters it makes from Weston Company.If the company purchases the scooters,Easton would still continue to use its own logo,sales staff,and advertising programs.If Easton outsources the scooters to Weston,which of the following costs would be relevant to the outsourcing decision?

• A) Materials cost
• B) Shipping and handling
• C) Inspection costs
• D) All of the above.

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Definitions:

Profit-Maximizing

A strategic approach in which a firm determines the best output level and pricing to achieve the highest possible profit.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single entity has a significant influence on the market price.

Long-Run Equilibria

A state in economics where all factors of production and costs are variable, and firms make decisions to maximize profits without any fixed inputs.

Demand Increases

A situation in which the desire and ability of consumers to purchase a good or service grow, typically leading to higher prices and potentially greater supply.