Zouar Computer Corporation Currently Manufactures the Disk Drives That It

question 195

Multiple Choice

Zouar Computer Corporation currently manufactures the disk drives that it uses in its computers.The costs to produce 5,000 of these disk drives last year were as follows:
Kidal Electronics has offered to provide Zouar with all of its disk drive needs for $27 per drive.If Zouar accepts this offer,Zouar will be able to use the freed up space to generate an additional $40,000 of income each year to produce more of its computer keyboards.Only $3 per drive of the fixed manufacturing overhead cost above could be avoided.Direct labor is an avoidable cost in this decision.Based on this information,would Zouar be financially better off making the drives or buying the drives and by how much?

• A) $15,000 better to buy
• B) $20,000 better to buy
• C) $35,000 better to buy
• D) $60,000 better to make

---

Definitions:

Society

A group of individuals involved in persistent social interaction, or a large social group sharing the same geographical or virtual territory, typically subject to the same political authority and dominant cultural expectations.

Marginal Revenue

The extra income generated from selling one additional unit of a product or service.

Marginal Cost

The rise in expense associated with the production of one more unit of a product or service.

P > MC

A condition where the price (P) of a good is greater than the marginal cost (MC) of producing it, typically indicating the potential for profit.