Foster Industries Manufactures 20,000 Components Per Year

question 38

Multiple Choice

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: If the component is not produced by Foster, inspection of products and provision of power costs will only be 10 percent of the production costs; moving materials costs and setting up equipment costs will only be 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount.An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?

• A) $25,000 increase
• B) $45,000 increase
• C) $90,000 decrease
• D) $90,000 increase

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Definitions:

Quotas

Limits or targets set on quantities, such as the maximum amount of goods that can be imported or the sales targets for individuals or teams.

Foreign Competition

Refers to the competitive pressure that domestic companies face from foreign companies in the same industry, impacting market share, pricing, and innovation strategies.

Tariffs

Taxes imposed on imported goods, often used to protect domestic industries or generate revenue.

Imported Goods

Products brought into one country from another for the purpose of sale or trade.