You Are Considering the Purchase of Production Volume of 100,000

question 23

Multiple Choice

You are considering the purchase of production volume of 100,000 widgets per year.You can purchase either a single 100,000 widget per year machine that costs $1,000,000 or first buy a 50,000 per year machine and then if sales volume permits,purchase another machine later.If widget production volume costs the same per unit to produce,what should the cost of the 50,000 per year machine be (to you) if there is a real option to expand production?

• A) less than $500,000
• B) $500,000
• C) greater than $500,000
• D) it is impossible to tell from the information given

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Definitions:

Closing Inventory

The value of the goods remaining unsold at the end of an accounting period, which becomes the opening inventory for the next period.

Finished Goods

Goods that have gone through the entire manufacturing cycle and are prepared for customer acquisition.

Standard Costs

Preset costs for materials, labor, and overhead used to measure the performance of manufacturing activities against planned costs.

Variable Costing

A costing method where only variable costs are charged to product costs, with fixed costs treated as period costs.