Blue Ridge Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 45,000 parts is $142,000, which includes fixed costs of $70,000 and variable costs of $72,000. By outsourcing the part, the company can avoid 30% of the fixed costs. If Blue Ridge Bicycles buys the part, what is the most Blue Ridge Bicycles can spend per unit so that operating income equals the operating income from making the part?
A)$0.48
B)$2.07
C)$4.24
D)$3.16

Question

Quizplus · Accepted Answer

The variable cost per unit is $72,000 / 45,000 = $1.60. The avoidable fixed cost is 30% of $70,000 = $21,000. The total avoidable cost per unit is ($72,000 + $21,000) / 45,000 = $2.07.

Blue Ridge Bicycles Uses a Standard Part in the Manufacture