Easton Company Makes and Sells Scooters Easton Can Currently Purchase the Scooters It Makes from Weston

question 92

Multiple Choice

Easton Company makes and sells scooters. Easton incurred the following costs in its most recent fiscal year: $$\begin{array} { | l | l | } \hline { \text { Cost Items Appearing } } & \text { on the Income Statement } \\\hline \text { Materials cost (\$10 per unit) } & \text { Depreciation on manufacturing equipment } \\\hline \text { Company president's salary } & \text { Salaries of administrative personnel } \\\hline \text { Labor cost (\$4 per unit) } & \text { Research and development costs } \\\hline \text { Advertising costs ( } 150.000 \text { per year) } & \text { Real estate taxes on factory } \\\hline \text { Shipping and handling } ( \$ 0.15 \text { per unit) } & \text { Inspection costs } \\\hline\end{array}$$ Easton can currently purchase the scooters it makes from Weston Company. If the company purchases the scooters, Easton would still continue to use its own logo, sales staff, and advertising programs. If Easton outsources the scooters to Weston, which of the following costs would be relevant to the outsourcing decision?

• A) Materials cost
• B) Shipping and handling
• C) Inspection costs
• D) All of these.

---

Definitions:

Job Order

A production system or manufacturing operation that produces goods in response to specific customer orders.

Custom-Made Goods

Products that are specially designed and manufactured according to the specifications and requirements of a customer.

Process Costing System

A process costing system assigns costs to masses of similar units, making it an effective method for organizations that produce goods in continuous processes, like chemicals or fuel.

Conversion Costs

The sum of direct labor and manufacturing overhead costs, representing the expenses incurred to convert raw materials into finished goods.