Beta Inc Can Produce a Unit of Zed for the Following

question 66

Multiple Choice

Beta Inc. can produce a unit of Zed for the following costs:
$$\begin{array} { l r } \text { Direct material } & \$ 10 \\\text { Direct labor } & 20 \\\text { Overhead } & \underline{50} \\\text { Total costs per unit } & \underline { \$ 80 }\end{array}$$
An outside supplier offers to provide Beta with all the Zed units it needs at $58 per unit. If Beta buys from the supplier, they will still incur 40% of its overhead. Beta should:

• A) Buy Zed since the relevant cost to make it is $60.
• B) Make Zed since the relevant cost to make it is $60.
• C) Buy Zed since the relevant cost to make it is $80.
• D) Make Zed since the relevant cost to make it is $30.
• E) Buy Zed since the relevant cost to make it is $30.

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Definitions:

Economic Profits

The financial gains that are realized when total revenues exceed total costs, including both explicit and implicit costs.

Accounting Profits

The net earnings of a company as calculated by subtracting all explicit costs from total revenues, according to standard accounting practices.

Fixed Costs

Costs that do not vary with the level of output or production, such as rent or salaries.

ATC

Average total cost is found by dividing the overall production cost by the number of units produced.