Houser Corporation Manufactures a Part for Its Production Cycle A)Make $20,000
B)Make $120,000
C)Buy $40,000
D)Buy $100,000

question 146

Multiple Choice

Houser Corporation manufactures a part for its production cycle.The costs per unit for 5,000 units of this part are as follows: Kingston Company has offered to sell Houser Corporation 5,000 units of the part for $112 per unit.If Houser Corporation accepts Kingston Company's offer,total fixed costs will be reduced to $60,000.Which alternative is more desirable,and by what amount is it more desirable?
Alternative Amount
$$\begin{array} { l r } \text { Direct materials } & \$ 32 \\\text { Direct labour } & 40 \\\text { Variable overhead } & 16 \\\text { Fixed overhead } & 32 \\\text { Total } & \$ 120\end{array}$$

• A)Make $20,000
• B)Make $120,000
• C)Buy $40,000
• D)Buy $100,000

---

Definitions:

Direct Materials

Raw materials that are directly traceable to the production of a specific good or service and directly incorporated into the final product.

Direct Labor

The wages paid to workers who are directly involved in the production of goods or the provision of services.

Equivalent Units Of Production

A concept in cost accounting that converts units of production into the amount of finished goods units.

Work In Process Inventory

Represents partially finished goods that are in the production process at a given time, between raw materials and finished goods.