Talboe Company Makes Wheels Which It Uses in the Production

question 123

Multiple Choice

Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 200,000 wheels annually are as follows: 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 another 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

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Definitions:

Plantation Economy

An economic system heavily based on agricultural production, often on a large scale, specializing in cash crops, and reliant on the labor of enslaved or indentured workers.

Colonization

The action or process of settling among and establishing control over the indigenous people of an area, often leading to the exploitation and cultural assimilation of those people.

Financng

The act of providing or securing funds or capital for business investment, purchase, or other monetary needs.