Xebex Pty Ltd Is Considering Whether to Make or Buy

question 28

Multiple Choice

Xebex Pty Ltd is considering whether to make or buy a component used in the production of Faz Machines.The annual cost of producing the 100 000 components used by the company is as follows.If Xebex were to discontinue production of the component,direct fixed manufacturing costs would be reduced by 80 per cent.Xebex should buy the 100 000 components if the cost of purchasing per unit is less than what amount?

• A) $4.50
• B) $4.00
• C) $3.80
• D) $3.00

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Definitions:

Optimal Choice

The best possible selection among various alternatives, considering constraints and objectives, to maximize or minimize desired factors such as utility, profit, or costs.

Consumer

An individual or group that purchases goods and services for personal use and not for manufacture or resale.

Marginal Utility

The additional satisfaction or benefit gained from consuming one more unit of a good or service.

Pretzels

A type of baked pastry made from dough that is commonly shaped into a knot and often salted.