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1. Sam’s Company manufactures widgets. Old Ham Company has approached Sam with the proposal to sell the company one of the components used to make widgets at the price of $100,000 for 50,000 units.  Sam is at present making these components in its own factory.  The following costs are associated with this part of the process when 50,000 units are produced:

Direct material $44,000
Direct labor 20,000
Manufacturing overhead    60,000
Total $124,000

The manufacturing overhead consists of $32,000 of costs that will be eliminated if components are no longer produced by Sam.  The remaining manufacturing overhead will carry on whether or not Sam makes the components.

What is the amount of unnecessary costs if Sam buys rather than makes components?

A) $60,000
B) $96,000
C) $124,000
D)   $100,000

2. The value of benefits inevitable by choosing one decision alternative over another is a(n)

A)  differential revenue.
B)   sunk cost.
C)   opportunity cost.
D)    incremental benefit.

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  • Category:- Accounting Basics
  • Reference No.:- M99296

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