Composite Company Uses 5,000 Units of Part AA1 Each Year

question 24

Multiple Choice

Composite Company uses 5,000 units of part AA1 each year. The cost of manufacturing one unit of part AA1 at this volume is as follows: An outside supplier has offered to sell Composite Company unlimited quantities of part AA1 at a unit cost of
$32) 00. If Composite Company accepts this offer, it can eliminate 50 percent of the fixed costs assigned to part AA1. Furthermore, the space devoted to the manufacture of part AA1 would be rented to another company for $24,000 per year. If Composite Company accepts the offer of the outside supplier, annual profits will

• A) increase by $17,000.
• B) increase by $24,000.
• C) increase by $34,000.
• D) increase by $3,500.

---

Definitions:

Family Businesses

Enterprises managed and/or owned by members of the same family, often characterized by unique traditions and values.

Second Generation

Often refers to the offspring of immigrants in a new country, though it can also denote the subsequent version or iteration of a product or technology.

High Failure Rate

A situation where there is a significant number of attempts or operations that do not achieve the intended outcome or success.

Ethical Failure

A situation where individuals or organizations fail to act in accordance with moral principles, often resulting in harm or breach of trust.