Curly Inc Is Considering Whether to Continue to Make a Component

question 30

Multiple Choice

Curly Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 16,000 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 minutes 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 the constraining 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) $20.60
• B) $17.52
• C) $24.65
• D) $21.57

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Definitions:

Endless Flow

A continuous, uninterrupted stream or sequence of activity or events.

Brain Wave

Oscillations of electrical potential between parts of the brain, visible on an EEG.

Beta Waves

Brainwaves that are associated with active, alert, and cognitive processing states of consciousness.

Electroencephalograph (EEG)

A diagnostic tool that records the electrical activity of the brain, important for identifying conditions such as epilepsy.