The Camel Company Produces 10,000 Units of Item Roto 454

question 110

Multiple Choice

The Camel Company produces 10,000 units of item Roto 454 annually at a total cost of $190,000.
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 20,000 \\\hline \text { Direct labor } & 55,000 \\\hline \text { Variable overhead } & 45,000 \\\hline \text { Fixed overhead } & 70,000 \\\hline \text { Total } & \$ 190,000 \\\hline\end{array}$$
The Yukon Company has offered to supply 10,000 units of Roto 454 per year for $18 per unit.If Camel accepts the offer,$4 per unit of the fixed overhead would be saved.In addition,some of Camel's facilities could be rented to a third party for $15,000 per year.At what price would Camel be indifferent to Yukon's offer?

• A) $17.00.
• B) $17.50.
• C) $18.50.
• D) $19.50.

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Definitions:

Equity Method Investment

An accounting technique used by firms to assess the profits earned through their investments in other companies by reporting these profits in proportion to their ownership stake.

Long-Term Investments-AFS

Available-for-Sale Long-term Investments are financial assets not classified as trading or held-to-maturity investments, valued at fair market prices with gains or losses reported in other comprehensive income.

Trading Securities

Financial instruments such as shares, bonds, or other securities that are purchased with the intention of selling them in the short term to profit from price fluctuations.

Debt Securities

Financial instruments representing money borrowed that must be repaid, such as bonds, bills, or notes.