Christian Company Manufactures a Part for Its Production Cycle The Fixed Factory Overhead Costs Are Unavoidable

question 63

Multiple Choice

Christian Company manufactures a part for its production cycle.The annual costs per unit for 5,000 units of the part are as follows:
$\begin{array}{ll}&\text { Per Unit }\\\text { Direct materials } & \$ 3.00 \\\text { Direct labor } & 5.00 \\\text { Variable factory overhead } & 4.00 \\\text { Fixed factory overhead } & \underline{2.00} \\\text { Total costs } & \$ 14.00\end{array}$
The fixed factory overhead costs are unavoidable.Another company has offered to sell 5,000 units of the same part to Christian Company for $15 per unit.The facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year.Christian Company should ________.

• A) make the part to save $5,000
• B) make the part to save $15,000
• C) buy the part and rent facilities to save $5,000
• D) buy the part and rent facilities to save $15,000

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Definitions:

Natural Rate

The rate of output at which an economy operates without inflationary pressures, often referred to as the natural rate of unemployment.

Phillips Curve

A concept in economics that indicates an inverse relationship between the rate of unemployment and the rate of inflation within an economy.

Inflation Rate

The rise in the average cost of goods and services throughout an economy over a specified period.

Money Supply Growth

The rate at which the total amount of monetary assets in an economy increases over time, which can influence inflation, interest rates, and economic growth.