Question

QUESTION 2 ANGER MGT, P.C. produces ANGER MANAGEMENT SESSIONS and must decide whether to accept a supplier's offer to sell the firm an essential input: TRAINING MATERIALS. This supplier is willing to s units of TRAINING MATERIALS every month. CurrentlyANGER MGT P C produces TRAINING MATERIALS with its own labor. The workers' salaries are $8,000 per month. Also about $100 of other costs per month are incurred producing the input. If the firm buys the part, the workers' salaries can be avoided.All other costs of making the input can be avoided. Which of the following is correct? upply the input for $15 per unit. ANGER MGT, P.C. requires 200 It is $4,900 O a. more profitable to buy this part than to make it. It is $5,100 O b. more profitable to buy this part than to make it. It is $4,900 c, less profitable to buy this part than to make it It is $5,100 O d. less profitable to buy this part than to make it.

Answer 1

Correct answer--- (b) It is $5100 more profitable to buy this part than to make it

	Option 1 (Buy)	Option 2 (Manufacture by own)
Purchase price	$ 3,000.00
Direct labor cost		$   8,000.00
Other cost		$   100.00
Total Relevant cost	$ 3,000.00	$   8,100.00

Total benefit in Buying= $8100-3000= $5100

It can be seen that Own cost of production is more than cost of purchasing from outside so it is better to purchase than to produce.