Tela Company Makes a 3-In-1 Product That Combines a Printer

question 145

Multiple Choice

Tela Company makes a 3-in-1 product that combines a printer, fax machine, and copier for home use. Currently, Tela makes all components of the 3-in-1 machine in-house. An outside company has offered to supply one component, part number B48, for $8 each. Tela uses 15,000 of these components per year. Costs of B48 are as follows:
$\begin{array}{lr}\text { Direct materials } & \$ 4.00 \\\text { Direct labour } & 2.00 \\\text { Variable overhead } & 1.50 \\\text { Fixed overhead } & 3.00\end{array}$
-Refer to the Figure.Assume that all of the fixed overhead is allocated and can NOT be avoided.Should Tela purchase the part from the outside supplier,and what is the financial effect?

• A)No, income will decrease by $10,500.
• B)No, income will decrease by $7,500.
• C)Yes, income will increase by $7,500.
• D)Yes, income will increase by $10,500.

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Definitions:

Service Department

A sector of a business or organization dedicated to providing maintenance, repair, and customer support services.

Electronics Company

A business entity that designs, manufactures, and sells electronic equipment, devices, and components.

P Chart

A type of control chart used for monitoring the proportion of nonconforming units in a sample, typically used in manufacturing or quality control processes.

Nonconforming Items

Products or outputs in a manufacturing or production process that do not meet the specified standards or quality criteria.