Benitez Company Currently Outsources a Relay Switch That Is a Component

question 42

Multiple Choice

Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $20 each. The company is considering making the switches internally at the following projected annual production costs: The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $1,500 a month. If the company decides to make the parts, total costs will be:

• A) $10,500 more than if the switches are purchased.
• B) $27,000 less than if the switches are purchased.
• C) $20,000 less than if the switches are purchased.
• D) $30,500 more than if the switches are purchased.

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Definitions:

Cash Bidding Price

The price offered in cash for an asset at an auction or in a competitive bidding situation.

Common Stock

Equity ownership in a company, giving holders voting rights and a share in the company's profits through dividends.

Ontario Ltd.

A term used to designate a limited company in the province of Ontario, Canada, often seen in business names.

Joint Venture

Involves the joining together of parts of companies to accomplish specific, limited objectives. Joint ventures are controlled by the combined management of the two (or more) parent companies.