A Business Is Operating at 70% of Capacity and Is

question 59

Multiple Choice

A business is operating at 70% of capacity and is currently purchasing a part used in its manufacturing operations for $24 per unit. The unit cost for the business to make the part is $36, including fixed costs, and $28, not including fixed costs. If 15,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

• A) $60,000 cost decrease
• B) $180,000 cost increase
• C) $60,000 cost increase
• D) $180,000 cost decrease

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Definitions:

Inelastic Supply

Describes a situation where the quantity supplied of a good or service is relatively unresponsive to changes in its price.

Consumers Of Food

Individuals or entities that ingest food products for nourishment and energy.

Excise Tax

A tax imposed on specific goods, such as tobacco and alcohol, typically gauged per unit.

Downward-Sloping Demand

The typical relationship between price and quantity demanded, indicating that as price decreases, demand usually increases.