Benitez Company Currently Outsources a Relay Switch That Is a Component

question 76

Multiple Choice

Benitez Company currently outsources a relay switch that is a component in one of its products.The switches cost $20 each.The company is considering making the switches internally at the following projected annual production costs: $\begin{array}{ll}\text { Unit-level material cost } & \$3 \\\text { Unit-level labor cost } & \$2 \\\text { Unit-level overhead } & \$1 \\\text { Batch-level set-up cost (5,000 units per batch) } & \$ 25,000 \\\text { Product-level supervisory salaries } & \$ 37,500 \\\text { Allocated facility-level costs } & \$ 20,000\end{array}$ The company expects an annual need for 5,000 switches.If the company makes the product,it will have to utilize factory space currently being leased to another company for $1,500 a month.If the company decides to make the parts,total costs will be:

• A) $10,500 more than if the switches are purchased.
• B) $27,000 less than if the switches are purchased.
• C) $20,000 less than if the switches are purchased.
• D) $30,500 more than if the switches are purchased.

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Definitions:

Petty Cash Fund

A small amount of cash kept on hand for minor or incidental expenses.

Cash Over and Short

An account used in cash management to record discrepancies between actual cash received and expected amounts, indicating either excess cash or a shortage.

Miscellaneous Revenue

Miscellaneous Revenue represents income received by a business from sources not related to its primary operations, such as sales of assets, interest, or one-time events.

Reconcile

The process of ensuring two sets of records (usually the balances of two accounts) are in agreement.