Text: Use the decision table to answer each question below
Alternative 1 (Make)
Alternative 2 (Buy)
Difference
Is alternative 1 higher or lower?
Total Production costs
14. You be the judge! Should we make product X that costs $27.50 per unit with an output of 1000 units or buy it from outside (outsource) at $25 per unit and get a rent of $2,000 per period for the freed space? The indirect overhead allocated to product X amounts to $3,600 per period.
a. You save $900 if you outsource.
b. You lose $900 if you outsource.
c. You save $4,100 if you outsource.
d. You lose $4,100 if you outsource.
e. None of the above.
15. You decide! In this general store, we have two departments -- cosmetics and other goods. Cosmetics had a profit of $87,500, while Other had a loss of $24,800. Forty percent of the rent of $120,000 is charged to Other. If we close Other, we can sublet the space and receive an income of $18,000 for it.
a. Losses will decrease by $5,200 if we close Other.
b. Losses will increase by $5,200 if we close Other.
c. Losses will remain the same if we close Other.
d. None of the above.
Saba Printing is considering accepting an order for $24,900 even though its cost amounts to $28,500 inclusive of $12,500 worth of overhead. 60% of this overhead is avoidable if the order is not accepted.
a. The order must be accepted because it increases profit by $1,400.
b. The order must be rejected because it decreases profit by $1,400.
c. The order must be accepted because it increases profit by $3,900.
d. The order must be rejected because it decreases profit by $3,900.
e. None of the above.
17. Arman Toys is considering selling 500 units of its AA Toy, which has a total cost of $25 per unit (60% of which is variable cost), for only $19 per unit to a customer who does business in Mexico. The current selling price of the AA Toy is $29 per unit, and the company has no excess capacity.
a. Arman should sell the toys because it will increase its profit by $2,000.
b. Arman should not sell the toys because it will decrease its profit by $2,000.
c. Arman should sell the toys because it will increase its profit by $5,000.
d. Arman should not sell the toys because it will decrease its profit by $5,000.
e. None of the above.
