Lasso Corporation Manufactures Part B89 in Its Internal Processing Division

question 61

Multiple Choice

Lasso Corporation manufactures Part B89 in its internal processing division. Lasso produces 11,000 units of Part B89 annually. The annual costs to produce Part B89 at the level of 11,000 units include: All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally or purchased from an outside supplier. Assuming Lasso can purchase 11,000 units of the part from the Nadal Parts Company for $20.50 each, and the facilities currently used to make the part could be rented out to another manufacturer for $18,000 a year, what should Lasso do?

• A)Make the part and save $9.00 per unit.
• B)Make the part and save $3.16 per unit.
• C)Buy the part and save $9.00 per unit.
• D)Buy the part and save $3.16 per unit.

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Definitions:

Departmental Overhead Rates

Ratios used to allocate indirect costs to different departments based on specific criteria, such as labor hours or machine use.

Molding Department

The section in a manufacturing facility where raw materials are shaped into parts through various molding processes.

Machine Hour

A measure of production time, indicating the hours a machine is in operation.

Activity-Based Costing

A costing methodology that assigns overhead and indirect costs to related products and services based on the activities they require.