Teich Incis Considering Whether to Continue to Make a Component or or to Buy

question 68

Multiple Choice

Teich Inc.is considering whether to continue to make a component or to buy it from an outside supplier.The company uses 15, 000 of the components each year.The unit product cost of the component according to the company's absorption cost accounting system is given as follows: Assume that direct labor is a variable cost.Of the fixed manufacturing overhead, 10% is avoidable if the component were bought from the outside supplier;the remainder is not avoidable.In addition, making the component uses 3 minutes on the machine that is the company's current constraint.If the component were bought, time would be freed up for use on another product that requires 6 minutes on this machine and that has a contribution margin of $8.10 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component?

• A)$15.55 per unit
• B)$11.50 per unit
• C)$19.15 per unit
• D)$15.10 per unit

---

Definitions:

Atomic Components

The smallest parts or units that make up a larger complex structure, often indivisible in context.

Symbolic Notation

A system of symbols and notations used to represent specific actions, processes, or entities in a concise and standardized manner.

Cheap Hotel

An accommodation option that provides basic amenities and services at a lower cost compared to more luxurious establishments.

Atomic Components

Basic, indivisible parts or elements of a system or structure.