Question Help Compact Appliances uses a standard part in the manufacture of seve

Question

Question Help Compact Appliances uses a standard part in the manufacture of several of its air conditioners. The cost of producing 40,000 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 $4.00 per unit, and avoid 40% of the fixed costs. If Compact Appliances makes the part, how much will its operating income be?

A. $120,000 greater than if the company bought the part

B. $30,000 greater than if the company bought the part

C. $80,000 greater than if the company bought the part

D. $20,000 greater than if the company bought the part

Explanation / Answer

Costs of making 80000 =60000+(50000*40%) Costs of purchasing 160000 =40000*4 Differential cost 80000 $80,000 greater than if the company bought the part

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