Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 90,000 parts is $130,000, which includes fixed costs of $70,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $3.50 per unit, and avoid 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $350,000 profit. If Harvey Automobiles makes the part, what will its operating income be?
A)$63,000 greater than if the company bought the part
B)$220,000 less than if the company bought the part
C)$220,000 greater than if the company bought the part
D)$350,000 greater than if the company bought the part

Question

Quizplus · Accepted Answer

The Answer of Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 90,000 parts is $130,000, which includes fixed costs of $70,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $3.50 per unit, and avoid 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $350,000 profit. If Harvey Automobiles makes the part, what will its operating income be?
A)$63,000 greater than if the company bought the part
B)$220,000 less than if the company bought the part
C)$220,000 greater than if the company bought the part
D)$350,000 greater than if the company bought the part

Harvey Automobiles Uses a Standard Part in the Manufacture of Several