Question :
7) ________ would be a consideration in a make-or-buy decision.
A) : 1216910
7) ________ would be a consideration in a make-or-buy decision.
A) Excess capacity
B) Rental income from unused facilities
C) Variable factory overhead
D) All of the above are correct.
8) If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the:
A) total variable cost of producing the product
B) market value less the usual markup on the product
C) total cost of producing the product
D) market value of the product
9) For make-or-buy decisions, relevant costs include:
A) direct material costs plus direct labor costs
B) incremental costs plus opportunity costs
C) differential costs plus fixed costs
D) incremental costs plus differential costs
10) The opportunity cost of holding significant inventory includes:
A) the interest forgone on an alternative investment
B) additional insurance costs
C) additional storage costs
D) All of these answers are correct.
Answer the following questions using the information below:
Stephans Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows:
Direct materials$ 1.00
Direct labor10.00
Variable overhead5.00
Fixed overhead8.00
Total$24.00
Bill Company has contacted Stephans with an offer to sell them 5,000 of the subassemblies for $22.00 each. Stephans will eliminate $25,000 of fixed overhead if it accepts the proposal.
11) What are the relevant costs for Stephans?
A) $140,000
B) $125,000
C) $105,000
D) $80,000
12) Should Stephans make or buy the subassemblies? What is the difference between the two alternatives?
A) Buy; savings = $20,000
B) Buy; savings = $50,000
C) Make; savings = $60,000
D) Make; savings = $5,000
Cost to make: $110,000 – [($1 + $10 + $5) × 5,000 + $25,000] = $5,000; make the subassemblies
13) A recent college graduate has the choice of buying a new car for $40,000 or investing the money for four years with a 6% expected annual rate of return. If the graduate decides to purchase the car, the best estimate of the opportunity cost of that decision is:
A) $2,400
B) $9,600
C) $40,000
D) zero since there is no opportunity cost for this decision
14) A supplier offers to make Part A for $35. Altec Company has relevant costs of $40 a unit to manufacture 1,000 units of Part A. If there is excess capacity, the opportunity cost of buying Part A from the supplier is:
A) 0
B) $40,000
C) $35,000
D) indeterminable
15) Altec Company has relevant costs of $40 per unit to manufacture 1,000 units of Part A. A current supplier offers to make Part A for $35 per unit. If capacity is constrained, the opportunity cost of buying Part A from the supplier is:
A) 0
B) $5,000
C) $35,000
D) indeterminable
16) Opportunity cost is the contribution to operating income that is forgone by NOT using a limited resource in its next-best alternative use.
