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

question 49

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 make the roller gear assembly in-house is _____.

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

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Definitions:

Sunk Cost

Costs that have already been incurred and cannot be recovered or changed, and thus should not affect future business decisions.

Salvage Value

The anticipated residual value of an asset after it has been fully depreciated and is no longer in use.

Net Working Capital

The variance between a corporation's current assets and its current debts, highlighting its short-term financial status.

Operating Cash Flow

Operating Cash Flow is the cash generated from the normal operations of a business, reflecting its ability to generate sufficient positive cash flow to maintain and grow its operations.