Growe Company Manufactures Sewing Machines and Requires 30,000 Units of a Component

question 103

Multiple Choice

Growe Company manufactures sewing machines and requires 30,000 units of a component that is used in the manufacturing process. If Growe buys the part from Zigler Brothers, the plant will be idle. Of the fixed, 55% overhead will continue regardless of the decision. The cost to buy the part from Zigler is $46. The unit cost to make the part is: Which alternative is more profitable and by what amount?

• A) Buy, $150,000
• B) Make,$150,000
• C) Buy, $75,000
• D) Make, $75,000

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Definitions:

Cyclical Stock

Shares of companies whose earnings and stock price are heavily influenced by the ups and downs of the economy at large.

Countercyclical Stock

A type of stock whose performance is inversely related to the overall state of the economy; it tends to perform well during economic downturns.

Expected Return

Expected Return is the anticipated amount of profit or loss an investment is likely to generate, accounting for both the risk of the investment and the time value of money.

Expected Rate Of Return

An estimate of the profit or loss of an investment over a given period of time, expressed as a percentage.