ProPrinters Uses Part 87A in the Production of Colour Printers

question 14

Multiple Choice

ProPrinters uses part 87A in the production of colour printers. Unit manufacturing costs of part 87A are as follows:
ProPrinters uses 100,000 units of 87A per year. Printers R Us has offered to sell ProPrinters 100,000 units of 87A per year for $12. Fixed overhead is unavoidable. $\begin{array}{lr}\text { Direct materials } & \$ 8 \\\text { Direct labour } & 2 \\\text { Variable overhead } & 1 \\\text { Fixed overhead } & 4\end{array}$
-Refer to the Figure.Which of the following is a qualitative factor that would NOT affect ProPrinters'decision?

• A)Making the product in-house would allow ProPrinters to focus on the remaining labourers in the company
• B)Ordering from Printers R Us would give ProPrinters a chance to see how well Printers R Us could meet JIT standards for ProPrinters' other products.
• C)Printers R US is known for the reliability of its products.
• D)Making the part in-house would help ProPrinters avoid layoffs of direct and indirect labour.

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Definitions:

Accrual Basis

An accounting method where revenues are recorded when earned and expenses are recorded when incurred, regardless of when cash is exchanged.

Recognizes Revenues

The process of recording revenue in the financial statements when it is earned and realizable, in accordance with the revenue recognition principle.

Expense Recognition Principle

Accounting principle that dictates expenses should be recognized in the period in which they are incurred to generate revenues.

Accounting Period

This is a specific duration of time for which financial statements are prepared to understand and evaluate a company's financial performance.