McGraw Inc manufactures 12,000 units of a part used in its production to manufacture guitars. The annual production activities related to this part are as follows: Direct materials $24,000 Direct labor 60,000 Variable overhead 54,000 Fixed overhead 84,000 Hill Inc has offered to sell 12,000 units of the same part to McGraw for $22 per unit. If McGraw were to accept the offer, some of the
facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000. Moreover, $4 per unit of the fixed overhead applied to the part would be totally eliminated. In the decision to make or buy the part, what is the relevant fixed overhead for McGraw Inc?
A) $30,000
B) $54,000
C) $84,000
D) $48,000
D
You might also like to view...
Which of the following is least likely to report (either directly or indirectly) to the vice president of finance?
a. controller b. treasurer c. shipping department supervisor d. accounts payable department
Which of the following is not a typical way that a company would duplicate a competitive advantage?
A. Hiring away key employees. B. Acquiring the new technology. C. Copying the business operations. D. Carrying large product inventories.
Which of the following is a component of the core strategy?
A) sales B) fixed cost C) value proposition D) net profit
Which of the following statements is CORRECT?
A. Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no excess current assets. Based on the AFN equation, its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets. B. If a firm retains all of its earnings, then it cannot require any additional funds to support sales growth. C. Additional funds needed (AFN) are typically raised using a combination of notes payable, long-term debt, and common stock. Such funds are non-spontaneous in the sense that they require explicit financing decisions to obtain them. D. If a firm has a positive free cash flow, then it must have either a zero or a negative AFN. E. Since accounts payable and accrued liabilities must eventually be paid off, as these accounts increase, AFN as calculated by the AFN equation must also increase.