Pett Company Produces a Part That Is Used in the Manufacture

question 24

Multiple Choice

Pett Company produces a part that is used in the manufacture of one of its products. The costs associated with the production of 5,000 units of this part are as follows:
Of the fixed factory overhead costs, $15,000 is avoidable.
-Titus Company has offered to sell 5,000 units of the same part to Pett for $18 per unit. Assuming there is no other use for the facilities, Pett should

• A) make the part as this would save $3 per unit.
• B) buy the part as this would save $3 per unit.
• C) buy the part as this would save the company $15,000.
• D) make the part as this would save $1 per unit.

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Definitions:

Break

A pause or interval for rest or to interrupt a continuity.

Cyanotic

A condition marked by a bluish or purplish discoloration of the skin and mucous membranes due to insufficient oxygenation of the blood.

Pertaining To

Relating to or concerning something; relevant or applicable.

Alcoholism

A chronic disease characterized by uncontrolled drinking and a preoccupation with alcohol, affecting physical and mental health.