Vest Industries Manufactures 40,000 Components Per Year

question 31

Multiple Choice

Vest Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75.
Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Vest purchases the component from the outside supplier?

• A) $225,000 decrease
• B) $195,000 increase
• C) $165,000 decrease
• D) $135,000 increase

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Definitions:

Expected Sales

The forecasted quantity of products or services a business expects to sell in a specific period.

Controlling Profit

The process of managing and manipulating the revenue and expenses of a business to ensure profitability.

Evaluating Performance

The process of assessing the effectiveness and efficiency of actions or outcomes against set goals or standards.

Master Budget

A comprehensive financial plan for an organization, encompassing all of its budgets for sales, production, overhead, etc., for a specific period.