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

question 81

Multiple Choice

Potter Company manufactures a part for its production cycle.The annual costs per unit for 10,000 units of the part are as follows:
$\begin{array}{ll}&\text { Per Unit }\\\text { Direct materials } & \$ 20.00 \\\text { Direct labor } & 15.00 \\\text { Variable factory overhead } & 16.00 \\\text { Fixed factory overhead } & \underline{10.00} \\\text { Total costs }&\$61.00\end{array}$
The fixed factory overhead costs are unavoidable.Paulson Company has offered to sell 10,000 units of the same part to Potter Company for $60 per unit.The facilities currently used to make the part could be rented out to another manufacturer for $100,000 per year.Potter Company should ________.

• A) make the part to save $10,000
• B) make the part to save $25,000
• C) buy the part and rent the facilities to save $10,000
• D) buy the part and rent the facilities to save $25,000

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Definitions:

Hyperopia

A vision condition, also known as farsightedness, where distant objects can be seen more clearly than close ones.

Myopia

A common vision condition also known as nearsightedness, where distant objects appear blurry while close ones are seen clearly.

Presbyopia

A state related to older age where the eye gradually loses its capacity to concentrate on objects that are close.

Cataracts

An eye condition characterized by the clouding of the lens, leading to a decrease in vision which can develop slowly and affect one or both eyes.