A Manufacturing Company Needs to Know Whether to Make In-House

question 71

Multiple Choice

A manufacturing company needs to know whether to make in-house or buy a roller gear assembly for its production of a new fax machine. The company expects to produce 9,000 units per year. The following estimates have been made:
$\begin{array}{|l|c|c|}\hline & \text { Make } & \text { Buy } \\\hline \text { Fixed cost per year } & \$ 8,000 & \$ 0 \\\hline \text { Variable cost per part } & \$ 5.45 & \$ 6.93 \\\hline\end{array}$
-The annual cost to buy the roller gear assembly is _____.

• A) more than $30,000 but less than or equal to $40,000
• B) more than $40,000 but less than or equal to $50,000
• C) more than $50,000 but less than or equal to $60,000
• D) more than $60,000

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Definitions:

Dividend

A portion of a company's earnings paid to shareholders, usually in cash or additional stock.

Intrinsic Value

The perceived or calculated value of a company, stock, currency, or product determined through fundamental analysis without reference to its market value.

Cash Proceeds

The amount of money received from a transaction, often from the sale of assets or securities.