Xebex Pty Ltd Is Considering Whether to Make or Buy

question 89

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.What are the irrelevant costs in the decision?

• A) $50 000
• B) $70 000
• C) $80 000
• D) $100 000

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Definitions:

Transaction Costs

The costs that parties incur during the process of agreeing to and following through on a bargain.

Mutually Beneficial Agreement

An arrangement between parties where both or all receive benefits or advantages.

Coase Theorem

A legal and economic theory that states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property.

Taxes

Compulsory financial charges or levies collected by governments from businesses and individuals to fund public expenditures.