A Company Has Two Alternatives for Meeting a Customer Requirement

question 15

Multiple Choice

A company has two alternatives for meeting a customer requirement for 9,000 units of a specialty molding. If done in-house, fixed cost would be $350,000, with variable cost at $30 per unit. If outsourced, the cost is $80 per unit. Determine the break-even point and determine if they should make the item in-house or outsource it.

• A) break-even point = 7,000 units; outsource it
• B) break-even point = 7,000 units; make it in-house
• C) break-even point = 11,667 units; outsource it
• D) break-even point = 11,667 units; make it in-house

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Definitions:

Expense Recognition Principle

An accounting principle that expenses should be recognized and recorded when they are incurred, not necessarily when they are paid.

Expenses Recorded

The process of documenting and recognizing incurred expenses in the financial records during a specific accounting period.

Journal Entries

A record of financial transactions in accounting that includes details like the date of the transaction, amounts involved, accounts affected, and a brief description.