31. Assuming Lincoln Company can parchase 5,000 units of the part from Erickson

Question

31. Assuming Lincoln Company can parchase 5,000 units of the part from Erickson Company for $15 each, and the facilities currently used to make the part could be rented out to another manufacturer for $20,000 a year, what should Lincoln Company do A. Make the part and save $5,000 B. Make the part and save $15,000. C. Buy the part and save $5,000. D. Buy the part and save S15,000 32. Assuming Lincoln Company can purchase 5,000 units of the part from Erickson Company for $14 cach, and $1.00 unit of fixed manufucturing overhead could be eliminated, what is the total relevant cost to make? A. $70,000. B. $65,000. C. $75,000. D. $115,000. When a scarce resource, such as machine hours, exists in an organization, the criterion that should be used to determine production is A. Contribution margin per unit. B. Selling price per unit C. Contribution margin per unit of scarce resource. D. Total variable costs of production. 34. Future costs are relevant to a particular decision if they A. Are variable costs. B. Are fixed costs. C Diffèr across the alternatives being considered. D. Remain unchanged across the alternatives being considered. 10

Explanation / Answer

31 Number of Part Puchased 5000 Facilities rented out 20000 (Revenue Opportunity) Saving PU 4.00 (20000/5000) Units 5,000 Savings 20,000 This will result in Savings, But as per the information given the decision could not be given 32 Number of Part Puchased 5000 Relevant Cost PU 14 (Rs. 1 per Unit of M.OH) Total Cost incurred 70000 Relevant Cost 70000 Note: Fixed Manufacturing Cost will continue to occur if we make or buy So it is a Sunk Cost 33 When Bottleneck is coming up in an organisation then in such case Contribution PU of Scare resource should be considered to know where to use scare resource Answer is C 34 Future cost which are fixed and continue to occur if decision is taken or not are irrelevant. Future cost such as Variable cost are always relevant to decision making

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