Barker Company Produces a Part That Is Used in the Manufacture

question 75

Multiple Choice

Barker 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, $60,000 is avoidable.
-Blass Company has offered to sell 5,000 units of the same part to Barker for $72 per unit. Assuming there is no other use for the facilities, Barker should

• A) make the part as this would save $12 per unit.
• B) buy the part as this would save $12 per unit.
• C) buy the part as this would save the company $60,000.
• D) make the part as this would save $4 per unit.

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Definitions:

Face Value

The nominal or stated value of a financial instrument, such as a bond or stock, as defined by the issuer.

Bond Issue

A bond issue refers to the process by which a corporation or government raises funds by issuing bonds to investors, which are debt securities promising to repay the principal along with interest.

Bond Discount

The difference between the bond's face value and its selling price when the bond is sold for less than its face value.

Premium on Bonds

The amount by which the price paid for a bond exceeds its face value, typically because the interest rate it pays is higher than the market rate.