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

question 89

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.Suppose that 40% of the fixed overhead is avoidable if part B48 is NOT made by Tela.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.

---

Definitions:

Prisoner's Dilemma Game

A classic example of game theory that illustrates why two individuals might not cooperate, even if it appears that it is in their best interest to do so.

Communication

The process of transmitting information, ideas, emotions, skills, and knowledge from one entity or person to another.

Cooperation

The process of groups working or acting together for their mutual benefit, as opposed to working in competition for selfish benefit.

Trust Game

The Trust Game is a behavioral experiment that measures trust and trustworthiness among participants, revealing insights into cooperative behavior and social bonds.