Taylor Manufactures 12,000 Units of a Part Used in Its

question 2

Multiple Choice

Taylor manufactures 12,000 units of a part used in its production to manufacture guitars. The annual production activities related to this part are as follows: Direct materials, $24,000
Direct labor, $60,000
Variable overhead, $54,000
Fixed overhead, $84,000
Best Guitars, Inc., has offered to sell 12,000 units of the same part to Taylor for $22 per unit. If Taylor were to accept the offer, some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000. Moreover, $4 per unit of the fixed overhead applied to the part would be totally eliminated.
In the decision to make or buy the part, what is the relevant fixed overhead?

• A) $30,000
• B) $54,000
• C) $84,000
• D) $48,000

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Definitions:

Import Restrictions

Measures implemented by a country to control the quantity of goods coming into the country from abroad, which can include tariffs, quotas, and other barriers.

Foreigners

Individuals or entities from one country who are not natives or do not possess citizenship in the host country.

Infant-Industry Argument

The economic rationale that new or emerging industries should be protected from international competition until they become mature and competitive.

Political Pressure

The use of influence or persuasion by individuals or groups, often through lobbying or campaigning, to affect governmental policy or decisions.