Shasta Company Is Trying to Decide Whether to Continue to Manufacture

question 55

Multiple Choice

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier. Which of the following is IRRELEVANT with respect to this decision?

• A) The quality of the component purchased from the outside supplier
• B) The outside supplier's ability to deliver the component on a timely basis
• C) The alternative uses of the facilities being used to currently manufacture the component
• D) The unavoidable fixed manufacturing costs associated with the manufacture of the component

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Definitions:

Lease Transaction

An agreement where a lessor allows a lessee to use an asset in exchange for payment over a predetermined period.

Capital Lease

A lease classified as an asset purchase for accounting purposes, where the lessee assumes some of the risks and benefits of ownership.

Lease Term

The period during which a lessee has the right to use an asset, as stipulated in a lease agreement.

Economic Life

The estimated period over which an asset is expected to be economically useful to one or more users.