Voltaic Electronics uses a standard part in the manufacture of different types o
ID: 2396476 • Letter: V
Question
Voltaic Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 33,000 parts is $105,000, which includes fixed costs of $50,000 and variable costs of $55,000. 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 $15,000. If Voltaic outsources, what will be the effect on operating income? A. decrease of $15,000 O B. increase of $52,000 ° C. increase of $15,000 OD. decrease of $52,000Explanation / Answer
Current variable cost = $55,000
Purchase cost from outside supplier = $1 * 33,000 units = $33,000
Savings in variable costs = $55,000 - $33,000 = $22,000
Savings in fixed costs = $50,000 * 30% = $15000
Income from alternate use of freed space = $15,000
Total increase in operating income = Savings in variable costss + Savings in fixed costs + Income from alternate use
Total increasse in operating income = $22,000 + $15,000 + $15,000 = $52,000
Hence, correct answer is B. increase of $52,000
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