Pitkin Company Produces a Part Used in the Manufacture of One

question 132

Multiple Choice

Pitkin Company produces a part used in the manufacture of one of its products.The unit product cost of the part is $33,computed as follows: An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each.The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier.Assume that direct labor is an avoidable cost in this decision.Based on these data,the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:

• A)$3 advantage
• B)$1 advantage
• C)$1 disadvantage
• D)$4 disadvantage

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Definitions:

Income

The financial gain earned or received by an individual, household, or entity, typically measured on a monthly or yearly basis through wages, dividends, or other earnings.

Price

The financial cost of acquiring a good, service, or asset.

Apples

Edible fruits from the species Malus domestica, known for their sweet to tart flavor and use in a variety of culinary dishes and products.

Bananas

A long, curved fruit with a yellow skin and soft, sweet flesh inside, grown in many tropical regions of the world.