Goldwater Company Manufactures a Part for Its Production Cycle

question 71

Multiple Choice

Goldwater Company manufactures a part for its production cycle.The annual costs per unit for 10,000 units of the part are as follows: The fixed factory overhead costs are unavoidable.Olson Company has offered to sell 10,000 units of the same part to Goldwater Company for $60 per unit.The facilities currently used to make the part could be used to make 10,000 units per year of a new product that has a contribution margin of $20 per unit.No additional fixed costs would be incurred with the new product.Goldwater Company should ________.

• A)make the part to save $10,000
• B)make the part to save $90,000
• C)make the new product and buy the part to save $90,000
• D)make the new product and buy the part to save $110,000

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Definitions:

Adjusting Entries

Bookkeeping entries executed at the termination of a financial period for the purpose of apportioning earnings and expenses to the actual period they took place.

Balance Sheet Accounts

Accounts appearing on the balance sheet, representing a company's assets, liabilities, and equity at a specific point in time.

Income Statement Accounts

Accounts that reflect income, expenses, gains, and losses, which are used to determine the net income of a business.

Deferred Revenue

Income received by a company for products or services yet to be delivered or completed, considered a liability until the revenue is earned.