A Firm Currently Makes a Component,and Requires 30 000 for the Coming

question 18

Multiple Choice

A firm currently makes a component,and requires 30 000 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.

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Definitions:

Monopolist

A single seller in a market who has significant control over a particular product or service, often with the ability to influence prices.

Total Revenue

The cumulative amount of proceeds a company collects from merchandise sales or service offerings over an established period.

Price Per Unit

The cost assigned to a single unit of a product or service.

Marginal Revenue

The boost in income generated from selling an extra unit of product.