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:

State Policy

Formal guidelines or courses of action adopted by a government to address public issues and achieve desired outcomes.

Early Industrialization

The phase during the 18th and 19th centuries when societies transitioned from agrarian to industrial economies, marked by the development of factories and machinery.

Tariff Barriers

Economic measures implemented by countries to restrict imports by increasing the cost of foreign goods through taxes.

Foreign Direct Investment

Investment made by a company or individual in one country in business interests in another country, in the form of establishing business operations or acquiring business assets.