Teich Inc Is Considering Whether to Continue to Make a Component

question 171

Multiple Choice

Teich Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 15,000 of the components each year. The unit product cost of the component according to the company's absorption cost accounting system is given as follows: Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 10% is avoidable if the component were bought from the outside supplier; the remainder is not avoidable. In addition, making the component uses 3 minutes on the machine that is the company's current constraint. If the component were bought, time would be freed up for use on another product that requires 6 minutes on this 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)$15.55 per unit
• B)$11.50 per unit
• C)$19.15 per unit
• D)$15.10 per unit

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Definitions:

Confidence Interval

A span of values, obtained from sample information, which is expected to encompass the value of an unidentified population characteristic.

Mean

The arithmetic average of a set of values, calculated by adding all the numbers together and dividing by the count of values.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, showing how much the values differ from the mean.

Mean

The average of a set of numerical values, calculated as the sum of the values divided by the number of values.