Aholt Corporation Makes 40,000 Units Per Year of a Part

question 23

Multiple Choice

Aholt Corporation makes 40,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $264,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.


-How much of the unit product cost of $59.90 is relevant in the decision of whether to make or buy the part?

• A)$38.00 per unit
• B)$59.90 per unit
• C)$35.20 per unit
• D)$22.70 per unit

---

Definitions:

Futures

Legal agreements that compel the purchaser to buy, or the seller to dispose of, an asset at an agreed price and date in the future.

Pounds

The currency unit of the United Kingdom, also known as the British pound sterling, used as a medium of exchange.

Futures Contracts

An agreement to buy or sell a specified quantity of a commodity or financial instrument at a predetermined price at a specified time in the future.

Profit or Loss

The financial result of a company's operations and activities for a specific period, indicating the difference between revenues and expenses.