Answer the Following Question(s)using the Information Below

question 127

Multiple Choice

Answer the following question(s) using the information below.Konrade's Engine Company manufactures part TE456 used in several of its engine models.Monthly production costs for 1,000 units are as follows:
It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier.Konrade's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
-If Konrade's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total

• A)$80,000.
• B)$98,000.
• C)$50,000.
• D)$100,000.
• E)$82,000.

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Definitions:

Put

A options contract that gives the owner the right, but not the obligation, to sell a specific amount of an asset at a predetermined price before a specified date.

Premium

An amount paid over the regular price or the intrinsic value for securities, insurance policies, or other financial products.

Margin Deposits

Funds that an investor must deposit as collateral to borrow from a broker to buy securities, typically used for trading on margin.

Call Options

Financial derivatives that grant the holder the option to purchase stocks or other assets at a predetermined price before the option expires.