Houston Ltd. manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Johnson Company has offered to sell Houston Ltd. 5,000 units of the part for £112 per unit. If Houston Ltd. accepts Johnson Company's offer, total fixed costs will be reduced to £60,000. What alternative is more desirable and by what amount is it more desirable?

A) Make £20,000
B) Make £120,000
C) Buy £40,000
D) Buy £100,000
E) Buy £140,000

Question

Houston Ltd. manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Johnson Company has offered to sell Houston Ltd. 5,000 units of the part for £112 per unit. If Houston Ltd. accepts Johnson Company's offer, total fixed costs will be reduced to £60,000. What alternative is more desirable and by what amount is it more desirable?
 
A) Make £20,000 
B) Make £120,000 
C) Buy £40,000 
D) Buy £100,000 
E) Buy £140,000

Quizplus · Accepted Answer

The Answer of Houston Ltd. manufacturers a part for its production cycle. The costs per unit for 5,000 units of this part are as follows: Johnson Company has offered to sell Houston Ltd. 5,000 units of the part for £112 per unit. If Houston Ltd. accepts Johnson Company's offer, total fixed costs will be reduced to £60,000. What alternative is more desirable and by what amount is it more desirable?
 
A) Make £20,000 
B) Make £120,000 
C) Buy £40,000 
D) Buy £100,000 
E) Buy £140,000