Textel Is Thinking About Having One of Its Products Manufactured

question 52

Multiple Choice

Textel is thinking about having one of its products manufactured by a subcontractor.Currently, the cost of manufacturing 1,000 units follows: $\begin{array}{lr}\text { Direct material } & \$ 45,000 \\\text { Direct labor } & 30,000 \\\text { Factory overhead (1/3 is variable) } & 98,000\end{array}$ If Textel can buy 1,000 units from a subcontractor for $100,000, it should:

• A)Make the product because current factory overhead is less than $100,000.
• B)Make the product because the cost of direct material plus direct labor of manufacturing is less than $100,000.
• C)Buy the product because the total incremental costs of manufacturing are greater than $100,000.
• D)Buy the product because total fixed and variable manufacturing costs are greater than $100,000
• E)Make the product because factory overhead is a sunk cost.

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Definitions:

Highest Levels

The most extreme or advanced point within a specific context or system.

Photochemical Smog

Air pollution created by the reaction of sunlight with pollutants such as nitrogen oxides and volatile organic compounds in the Earth's atmosphere.

Primary Pollutants

Pollutants that are emitted directly from identifiable sources and enter the air or water in a harmful form.

Sulphur Dioxide

A toxic gas with a pungent, irritating smell, produced by burning sulfur in the air. It is used as an industrial pollutant and also occurs naturally in volcanic emissions.