A Firm Currently Makes a Component, and Requires 30 000

question 41

Multiple Choice

A firm currently makes a component, and requires 30 000 of them for the coming year's production. Another supplier has offered the part at a delivered price of $3 per unit. It would cost $3000 to check purchased units for quality. Product costs per unit for the past year were $2.35 variable and $1 fixed based on 30 000 units. If the component was bought, fixed overhead would be reduced by $6000, the cost of leasing specialised equipment. The space vacated by the equipment can be rented for $4000 for the year. Which of the following statements is the correct quantitative analysis of the make or buy decision?

• A) The buy option costs $12 500 more than the make option.
• B) The buy option costs $12 500 less than the make option.
• C) The buy option costs $10 500 more than the make option.
• D) The firm is indifferent between the two options.

---

Definitions:

Cell

The smallest structural and functional unit of an organism, typically microscopic and consisting of cytoplasm and a nucleus enclosed in a membrane.

Turgor Pressure

The pressure of water pushing the plasma membrane against the cell wall of a plant or bacterium, providing rigidity to the cell.

Hypertonic

A solution that has a higher solute concentration than the cytoplasm of a cell, causing cell shrinkage.

Hypotonic

Describes a solution that has a lower concentration of solutes relative to the inside of a cell, causing water to enter the cell by osmosis.