Day: January 23, 2021

A company manufactures one product. It has variable costs of £600,000 and fixed costs of £300,000.
If it bought all its production from another supplier, it could use its existing machinery to make a total contribution of £400,000. Fixed costs would not change.
What is the maximum price it should pay to obtain all its production from another supplier?

Select ONE answer:

1. £600,000
2. £700,000
3. £900,000
4. £1,000,000

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – £600K + £400K

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