Use the Following to Answer the Questions Below

question 8

Multiple Choice

Use the following to answer the questions below.
The Steele Bike Company assembles bicycles for a major retail toy outlet.The main purchase is bicycle frames for making these bicycles.Dan Steele,the owner,wants to locate a low-cost supplier for the frames used in this assembly operation.The supplier will be selected based on total annual cost to supply Steele's needs.Annual requirements are for 100,000 frames,and the company operates 200 days a year.Two suppliers,Acme and State,have quoted the same price for the frames,but quantities,lead times and shipping costs are considerably different.The following data are available for the two suppliers.

-Refer to the instruction above.The high-cost supplier has indicated that if Steele will select them as the supplier of choice,they will not charge for shipping.How does this change the decision on bicycle frame suppliers?

• A)The high-cost supplier is now the low-cost supplier,and becomes the frame supplier for Steele.
• B)The suppliers are now equal cost,and Steele can select either supplier.
• C)It doesn't change the decision-they are still the high-cost supplier.
• D)More information is required to make this decision.

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Definitions:

Break Even Point

The point at which total costs and total revenue are equal, meaning the business is neither making a loss nor a profit.

Unit Contribution Margin

The amount each unit sold contributes towards covering fixed costs and generating profit, calculated as the sales price per unit minus variable cost per unit.

Fixed Costs

Costs that do not vary with the volume of output, such as rent, salaries, and insurance.

Target Net Profit

The desired bottom-line profit that a company aims for after all expenses have been subtracted from revenue.