BLUE Company BLUE Company Needs 10,000 Units of a Certain Part to Part

question 29

Multiple Choice

BLUE Company
BLUE Company needs 10,000 units of a certain part to be used in production.If BLUE buys the part from RED Company instead of making it,BLUE could not use the present facilities for another manufacturing activity.Sixty percent (60%) of the fixed overhead applied will continue regardless of what decision is made.
The following quantitative information is available regarding the situation presented:

Refer to BLUE Company.Which alternative is more desirable for BLUE and by what amount?

• A)Buy,$40,000
• B)Make,$40,000
• C)Buy,$50,000
• D)Make,$50,000

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Definitions:

Short-Run Marginal Cost

The cost incurred by producing one additional unit of a product or service in the short run, where some factors are fixed.

Government Regulations

Laws and rules established by governmental agencies to control or modify economic behavior, protect consumers, or preserve natural resources.

Resource Prices

The cost of inputs used in the production of goods or services, such as raw materials, labor, and energy.

Sunk Costs

Costs that have already been incurred as a result of past decisions. They are sometimes referred to as historical costs.