Gnome Company Is Trying to Decide Whether to Continue to Manufacture

question 160

Multiple Choice

Gnome Company is trying to decide whether to continue to manufacture a particular component or to buy the component from a supplier. Which of the following is relevant to this decision?

• A)the potential uses of the facilities that are currently used to manufacture the component
• B)the insurance on the manufacturing facility which will continue regardless of the decision
• C)allocated corporate fixed costs which would have to be allocated to other products if the component is no longer manufactured
• D)the cost of the equipment that is currently being used to manufacture the component

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Definitions:

Credit

An accounting entry that increases the balance of liabilities and equity accounts, or decreases the balance of an asset or expense account.

Stockholders' Equity

The equity held by stockholders in a corporation, determined by subtracting total liabilities from total assets.

Dividends Account

An account used in accounting to track distributions of earnings paid to shareholders.

Salary Expense Account

An account recording the total amount paid to employees for services rendered during a specific period, before any deductions.