Use the Following Scenario to Answer the Questions Below

question 35

Multiple Choice

Use the following scenario to answer the questions below.
A company must decide if it will make or buy an item it needs.The company can make the item for $10 / unit,but must spend $15,000 per year in tooling to do so.An outside firm has quoted a total price of $12 / unit to supply the quantity required.
-Refer to the instruction above.What does the company save for the year by selecting this low-cost option (for annual requirements of 5,000 units) ?

• A)$5,000
• B)$15,000
• C)$65,000
• D)can't be determined with information given

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Definitions:

Opportunity Costs

Represents the benefits an individual, investor, or business misses out on when choosing one alternative over another.

Explicit Costs

Direct, out-of-pocket payments for inputs or resources used in the production of goods or services, such as wages for labor, rent for offices, or materials for production.

Implicit Costs

Implicit costs are the opportunity costs of using resources that a company already owns, representing the potential income lost by not utilizing them elsewhere.

Diseconomies of Scale

A phenomenon where an increase in production leads to higher average costs per unit due to inefficiencies, often occurring when companies become too large.