Use the Information Below to Answer the Following Question(s)

question 14

Multiple Choice

Use the information below to answer the following question(s) :
Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 6,000 units, are as follows:

-Assume Cruise Company can purchase 6,000 units of the part from Suri Company for $14.00 each, and the facilities currently used to make the part could be used to manufacture 6,000 units of another product that would have an $8 per unit contribution margin. If no additional fixed costs would be incurred, what should Cruise Company do?

• A) Make the new product and buy the part to earn an extra $5.00 per unit contribution to profit.
• B) Make the new product and buy the part to earn an extra $6.00 per unit contribution to profit.
• C) Continue to make the part to earn an extra $2.00 per unit contribution to profit.
• D) Continue to make the part to earn an extra $4.00 per unit contribution to profit.

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Definitions:

Absolute Advantage

The ability of an entity to produce more of a good or service with the same amount of resources than another entity.

Opportunity Cost

The price paid for not selecting the best available alternative when deciding.

Bushel

A unit of volume that is used primarily in the United States to measure agricultural commodities, equivalent to approximately 35.24 liters.

Comparative Advantage

The ability of an individual, company, or country to produce a good or service at a lower opportunity cost than competitors, enabling beneficial trade.