Hadley, Inc

question 46

Multiple Choice

Hadley, Inc. makes a line of bathroom accessories. Because of a decline in sales, the company has 10,000 machine hours of idle capacity available each year. This idle capacity could be used by the company to make, rather than buy, one of the components used in its production process. Hadley needs 5,000 units of this component each year. At present, the component is being purchased from an outside supplier at $7.50 per unit. Variable production cost for the component would be $4.10 per unit, and additional supervisory costs would be $18,000 per year. Already existing fixed costs, which would be allocated to this part, amount to $300,000 per year.
-What would the annual cost of additional supervision have to be in order for Hadley to be economically indifferent to making or buying the component? (Assume all other conditions stay the same.)

• A) $17,000.
• B) $18,000.
• C) $19,000.
• D) $20,000.

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Definitions:

Handmade Wooden Crafts

Creative and artistic items made from wood through manual skills, ranging from decorations, furniture, to utensils, emphasizing craftsmanship.

Artisans

Skilled craft workers who make or create things by hand that may be functional or strictly decorative, such as furniture, decorative arts, sculptures, clothing, jewelry, food items, and household items.

Neighborhoods

Specific geographic areas within a city or town, characterized by unique features, communities, and cultures.

Residents

Individuals who inhabit a certain locality or area, often used in the context of people living within a specific city, town, or country.