L Ltd Can Subcontract Out One of Its Components at $18

question 58

Multiple Choice

L Ltd can subcontract out one of its components at $18 each. The business can produce the component internally for a total cost of $19 including the allocation of fixed costs at $5 per component. L Ltd has spare capacity. Should it make the component internally or contract it out?

• A)Make the component as the variable cost of $14 ($19-$5)for internal production is cheaper than the $18 cost of subcontracting.
• B)Subcontract as the total cost of subcontracting at $18 is cheaper than the cost of $19 for internal production.
• C)Subcontract as it will be easier.
• D)None of the above.

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Definitions:

Fee-splitting

The practice of dividing professional fees for services with someone who referred a client or patient, often seen in the medical field.

Insider Trading

The illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.

Confidential Information

Sensitive data that is meant to be kept secret from unauthorized persons, usually because of its value or potential harm if disclosed.

Security Law

A legal framework designed to protect against threats and vulnerabilities in both physical and digital realms.