Talboe Company Makes Wheels That It Uses in the Production

question 16

Multiple Choice

Talboe Company makes wheels that it uses in the production of children's wagons. Talboe's costs to produce 200,000 wheels annually are as follows: $\begin{array}{lrr} \text {Direct materials } &£40,000\\ \text {Direct labour. } &60,00\\ \text {Variable manufacturing overhead } &30,000\\ \text {Fixed manufacturing overhead } &\underline{70,000}\\ \text {Total } &\underline{£200,000}\\\end{array}$

An outside supplier has offered to sell Talboe similar wheels for £0.80 per wheel. If the wheels are purchased from the outside supplier, £25,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to anther company for £55,000 per year.
- What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels?

• A)£0.95
• B)£1.15
• C)£1.00
• D)£1.05

Apply the concept of relative and absolute purchasing power parity in predicting future exchange rates.

Evaluate the risks and returns associated with foreign exchange transactions.

Calculate the net present value (NPV) of international projects, incorporating risk factors and capital costs.

Identify opportunities for triangular arbitrage and execute calculations to determine potential profits.

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Definitions:

Claims

Formal requests or demands, often in the context of insurance or legal arenas, for payment due to loss, injury, or damage.

Export

The process of sending goods or services to another country for sale or trade.

Act of State Doctrine

A principle that shields countries from being sued in foreign courts for actions taken within their own territories.

Judgment

A legal decision made by a court following a lawsuit.