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Voltaic Electronics uses a standard part in the manufacture of different types o

ID: 2553476 • Letter: V

Question

Voltaic Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 36,000 parts is $110,000, which includes fixed costs of $50,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $1 per unit and avoid 30% of the fixed costs. Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000. If Voltaic outsources, what will be the effect on operating income? OA increase of $55,000 OB. decrease of $55,000 decrease of $15,000 O D. increase of $16,00o OE. increase of $39,000

Explanation / Answer

total cost before change - 110,000

total cost after change - 71,000

less estimated profit - 16,000

= 55,000

increase in operating income = 110,000 - 55,000

= 55,000

answer ) A