Thompson Company Currently Produces 10,000 Units of a Key Part

question 42

Multiple Choice

Thompson Company currently produces 10,000 units of a key part at a total cost of $512,000 annually.Annual variable costs are $300,000.Of the annual fixed costs,$140,000 relate specifically to this part.The remaining fixed costs are unavoidable.
Another manufacturer has offered to supply the part for $48 per unit.The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $60,000 annually.Alternatively,the facilities could be rented out at $70,000 annually.If Thompson Company makes the part,what is the annual opportunity cost of the facilities?

• A) $13,000
• B) $28,000
• C) $60,000
• D) $70,000

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Definitions:

Retina

A layer at the back of the eyeball containing cells that are sensitive to light and trigger nerve impulses that pass via the optic nerve to the brain, where a visual image is formed.

Sensation

The process by which sensory receptors and the nervous system receive stimuli from the environment, such as touch, taste, smell, sound, and sight.

Perception

The process by which sensory information is organized, interpreted, and consciously experienced.

20,000 Hz

The frequency of soundwaves that typically represents the upper limit of human hearing.