Zuppa Corporation Currently Maintains Its Own Printing Department

question 13

Multiple Choice

Zuppa Corporation currently maintains its own printing department.The annual costs of running this department are as follows: Somatic Copy Service has offered to provide Zuppa with all of its printing needs at a total annual cost of $68, 000.If Zuppa went with this offer, they would close down their printing department.Except for 30% of the fixed costs, all of the annual printing department costs above can be avoided if it was closed down.Based on this information, would Zuppa be better off to keep its printing department or to shut it down and take Somatic's offer and by how much?

• A)$4, 000 better off to go with Somatic
• B)$5, 000 better off to keep the department
• C)$20, 000 better off to keep the department
• D)$22, 000 better off to go with Somatic

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Definitions:

Operating Cycle

The duration it takes for a company to buy inventory, sell that inventory, and collect cash from the sale, representing the time it takes to convert resources into cash flows.

Notes Payable

A liability recorded on a balance sheet, representing a written promise to pay a certain amount in the future.

Instalment Payments

Instalment payments are payments made towards the purchase of an item or repayment of a loan that are spread out over a period of time in fixed amounts.

Interest Expense

The cost incurred by an entity for borrowed funds, often related to bonds, loans, and credit lines, and is typically reported on the income statement.