Iwasaki Inc

question 11

Multiple Choice

Iwasaki Inc.is considering whether to continue to make a component or to buy it from an outside supplier.The company uses 13,000 of the components each year.The unit product cost of the component according to the company's cost accounting system is given as follows: Assume that direct labor is a variable cost.Of the fixed manufacturing overhead,30% is avoidable if the component were bought from the outside supplier.In addition,making the component uses 1 minute on the machine that is the company's current constraint.If the component were bought,this machine time would be freed up for use on another product that requires 2 minutes on this machine and that has a contribution margin of $5.20 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)$22.40
• B)$19.80
• C)$17.28
• D)$19.88

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Definitions:

Intended Message

The particular details or feelings a person intends to express to others via communication.

Channel

A medium through which information is transmitted from one entity to another.

Literal-Minded

The tendency to interpret statements or words in their most basic, explicit sense without considering context or metaphor.

Interpersonal Communication

The process of exchanging information, thoughts, and feelings between individuals through verbal or non-verbal means, fundamental to building and maintaining relationships.