d pat in the manufacture of severa af its bikes. The cost of producing 40,00 prt
ID: 2550114 • Letter: D
Question
d pat in the manufacture of severa af its bikes. The cost of producing 40,00 prts in $140.000ch ines fued sts of $68 000 and 000, which includes fixed costs of $68,000 and variable costs of $72.000. The company can buy the part from an outside supplier for S3 80 per urit, and avoid 30% ofthe food costs t Bilue Ridge Bicycles makes the part, how much villits operating income be? O A. $71,000 greater than the company bought the par O B. $88.400 greater than if the company bought the part C. $71,000 less than l The company bought the pat O D. $88,400 less than id the company bought the par Cack to select your ansser F F12 2it etDelece Sys Rq Break FS F6 F3 F4 sFIF 9 0 4 o W E R EnterExplanation / Answer
Total cost if company makes the part = Variable cost+Fixed cost
= $72,000+$68,000 = $140,000
Total cost if company bought the part = Purchase cost+Unavoidable Fixed cost
= (43,000 parts*$3.80 per part)+($68,000*70% unavoidable)
= $163,400+$47,600 = $211,000
Since total cost is more in case the company bought the product, the operating income will be higher if the company makes the product by $71,000 ($211,000 - $140,000)
Therefore if Blue Ridge Bicycles makes the part, its operating income will be $71,000 greater than if the company bought the part. Hence the correct answer is A.
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